Overview
Teladoc, Inc. was incorporated in theState of Texas inJune 2002 and changed its state of incorporation to theState of Delaware inOctober 2008 . EffectiveAugust 10, 2018 ,Teladoc, Inc. changed its corporate name toTeladoc 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 inPurchase, 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.Teladoc Health solutions are transforming the access, cost and quality dynamics of healthcare delivery for all of our market participants. Members rely onTeladoc Health to remotely access affordable, on-demand healthcare whenever and wherever they choose. Our Clients on behalf of their employees or beneficiaries as well as direct-to consumer individuals (D2C) purchase our solutions to reduce their healthcare spending and offer convenient, affordable, high-quality healthcare to their employees or beneficiaries. Our network of physicians and other healthcare professionals, or our providers have the ability to generate meaningful income and deliver their services more efficiently with no administrative burden. COVID-19 Update We believe that favorable existing macro trends were accelerated by the impacts of the COVID-19 pandemic, driving greater consumer trial and use of virtual care, and increased adoption by employers, health plans, hospitals and health systems, and health care providers. In combination with the expansion of our capabilities, we believe that these trends present significant opportunities for virtual healthcare to address the most pressing, universal healthcare challenges through trusted solutions, such as ours, that deliver convenient, high quality care; empower consumers to manage and improve their health; and enable providers to offer their best care for their patients. We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business. The outbreak of COVID-19 in 2020 increased utilization of our telehealth services, but it is uncertain whether such increase in demand will continue. While the COVID-19 pandemic has not had a material adverse impact on our financial condition and results of operations to date, the future impact on our operational and financial performance will depend on certain developments, including the duration and spread of the pandemic, impact on our Clients and Members, impact on our sales cycles, and effect on our vendors, all of which are uncertain and cannot be predicted. Public and private sector policies and initiatives to reduce the transmission of COVID-19 and disruptions to our operations and the operations of our third-party suppliers, along with the related global slowdown in economic activity, may result in decreased revenues, decreased collections, and increased costs. Further, the economic effects of the COVID-19 pandemic have financially constrained some of our prospective and existing Clients' healthcare spending, which may negatively impact our ability to acquire new Clients and our ability to renew subscriptions with or sell additional solutions to our existing Clients. We also may experience increased Member attrition to the extent our existing Clients' reduce their respective workforces in response to economic conditions. In addition, due to our subscription-based business model, the effect of the COVID-19 pandemic may not be fully reflected in our revenue until future periods. It is possible that the COVID-19 pandemic, the measures taken by the governments and businesses affected and the resulting economic impact may materially and adversely affect our business, results of operations, cash flows and financial positions as well
as our customers.
We have also taken measures in response to the COVID-19 pandemic, including temporarily closing our offices and implementing a work from home policy for our workforce; limiting capacity at our offices that have reopened; implementing additional safety policies and procedures for employees working in our offices that have reopened; suspending employee travel and in person meetings; and adjusting our supply chain and inventory levels. We may take 56
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further actions that alter our business operations as may be required by federal, state, local or foreign authorities or that we determine are in the best interests of our employees, Clients, Members and stockholders. The effects of these operational modifications are unknown and may not be realized until further reporting periods. Revenue
We have a demonstrated track record of driving growth both organically and through acquisitions. We increased revenue 98% to$1,094.0 million in 2020, including an incremental$128.3 million from ourInTouch Health acquisition and Livongo merger. Excluding the impact of the InTouch and Livongo acquisitions, revenue increased 75%, reflecting the acceleration of the adoption of virtual care stemming from the COVID-19 pandemic and the Company's broad momentum to transform the healthcare experience. In 2019, revenue increased 32% to$553.3 million which included an incremental$33.2 million from our Advance Medical and MedecinDirect acquisitions. For the year endedDecember 31, 2020 , 79%, 19% and 2% of our revenue was derived from subscription access fees, visit fees and other, respectively. For both of the year endedDecember 31, 2019 and 2018, 84% and 16% of our revenue were derived from subscription access fees and visit fees. We believe our continued strong subscription fee revenue is mainly representative of the value proposition we provide the broader healthcare system.
Membership, Visits and Platform-Enabled Sessions
We completed approximately 10.6 million, 4.1 million and 2.6 million telehealth visits in 2020, 2019 and 2018, respectively.U.S. Paid Membership increased by approximately 15.1 million Members to 51.8 million fromDecember 31, 2019 toDecember 31, 2020 .U.S. Paid Membership increased by approximately 13.9 million Members to 36.7 million fromDecember 31, 2018 toDecember 31, 2019 . We also completed approximately 2.1 million platform-enabled sessions associated with InTouch fromJuly 1, 2020 , the date we acquired InTouch, toDecember 31, 2020 . Acquisition History We have scaled and intend to continue to scale our platform through the pursuit of selective acquisitions. We have completed multiple acquisitions since our inception, which we believe have expanded our distribution capabilities and broadened our service offering. OnOctober 30, 2020 , we completed the merger with Livongo. Upon completion of the merger, each share of Livongo's common stock converted into the right to receive 0.5920 shares ofTeladoc 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 to shareholders of Livongo as of a record date ofOctober 29, 2020 . The total consideration 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 ofTeladoc Health's common stock valued at approximately$12,981.6 million onOctober 30, 2020 . Livongo is a leading provider to empower people with chronic conditions to live better and healthier lives. OnJuly 1, 2020 , we completed the acquisition of InTouch for aggregate consideration of$1,069.8 million , which was comprised of 4.6 million shares of our common stock valued at$903.3 million onJuly 1, 2020 , and$166.5 million of net cash. InTouch is a leading provider of enterprise telehealth solutions for hospitals and health systems. OnApril 30, 2019 , we completed the acquisition of theParis -based telemedicine provider MedecinDirect for aggregate net cash consideration of$11.2 million and with the potential for additional earnout consideration. OnJune 19, 2019 , we made a$5.0 million minority investment inVida Health . OnMay 31, 2018 , we completed our acquisition of Advance Medical, a leading virtual healthcare provider outsidethe United States , for aggregate consideration of$351.7 million , which was comprised of 1,344,387 shares of our common stock valued at$68.6 million onMay 31, 2018 , and$283.1 million of
net cash. 57 Table of Contents OnJuly 14, 2017 , we completed the acquisition of Best Doctors, for aggregate consideration of$445.5 million , which was comprised of$379.3 million of net cash and 1,855,078 shares of our common stock valued at$66.2 million . Best Doctors is the world's leading expert medical consultation company focused on improving health outcomes for the most complex, critical, and costly medical issues.
Key Factors Affecting Our Performance
We believe that our future performance will depend on many factors, including the following:
Number of Members. Our revenue growth rate and long-term profitability are affected by our ability to increase our number of Members because we derive a substantial portion of our revenue from subscription access fees via Client contracts that provide Members access to our professional provider network in exchange for a contractual based monthly fee or subscription access fees derived from our D2C Members. Therefore, we believe that our ability to add new Members is a key indicator of our increasing market adoption, the growth of our business and future revenue potential, and that increasing our Membership is an integral objective that will provide us with the ability to continually innovate our services and support initiatives that will enhance Members' experiences. In 2020, Membership increased by approximately 15.1 million Members or 41%, to 51.8 million atDecember 31, 2020 . FromDecember 31, 2018 throughDecember 31, 2019 , Membership increased by approximately 13.9 million Members, or 61%, to 36.7 million atDecember 31, 2019 . Number of Visits. We also recognize revenue in connection with the completion of a general medical visit, expert medical service and other specialty visits for the majority of our contracts. Accordingly, our visit revenue, or visit fees, generally increase as the number of visits increase. Visit fee revenue is driven primarily by the number of Clients, the number of Members in a Client's population, Member utilization of our provider network services and the contractually negotiated prices of our services. We believe that increasing our current Member utilization rate and increasing penetration further into existing and new health plan Clients is a key objective in order for our Clients to realize tangible healthcare savings with our service. Visits increased by 156%, or 6.5 million, to approximately 10.6 million for the year endedDecember 31, 2020 compared to the same period in 2019. Visits increased by 57%, or 1.5 million, to approximately 4.1 million for the year endedDecember 31, 2019 compared to the same period in 2018. Number Platform-Enabled of Sessions. A platform-enabled session is a unique instance in which our licensed software platform has facilitated a virtual voice or video encounter between a care provider and our Client's patient, or between care providers. We believe platform-enabled sessions are an indicator of the value our Clients derive from the platform they license from us in order to facilitate virtual care. Over time, we expect platform-enabled sessions to outpace overall revenue growth as telehealth becomes a bigger part of our Clients' care delivery strategy. 2.1 million platform-enabled sessions associated with InTouch were completed fromJuly 1, 2020 , the date we acquired InTouch, toDecember 31, 2020 . Seasonality. We typically experience the strongest increases in consecutive quarterly revenue during the fourth and first quarters of each year, which coincides with traditional annual benefit enrollment seasons. In particular, as a result of many Clients' introduction of new services at the very end of the current year, or the start of each year, a high concentration of our new Client contracts have an effective date ofJanuary 1 . Therefore, while Membership increases, utilization is dampened until service delivery ramps up over the course of the year. Additionally, our business has become more diversified across services, channels, and geographies. We continue to see a diversification of Client start dates, resulting from our health plan expansions, cross sales of new services, international growth, and mid-market employer growth, all of which are not constrained by a calendar year start. As a result of national seasonal cold and flu trends, we typically experience our highest level of visit fees during the first and fourth quarters of each year. Conversely, the second quarter of the year has historically been the period of lowest utilization of our provider network services relative to the other quarters of the year. However, during the COVID-19 pandemic in 2020, we did not experience the typical seasonality associated with national cold and flu outbreaks. See "Risk Factors-Risks Related to Our Business-Our quarterly results may fluctuate significantly, which could adversely impact the value of our common stock." included elsewhere in this Annual Report on Form 10-K. 58 Table of Contents Critical Accounting Policies Revenue
We generate virtual healthcare service revenue from contracts with Clients who purchase access to our professional provider network or medical experts for their employees, dependents and other beneficiaries. Our Client contracts include a per-Member-per-month access fee and certain contracts also include additional fees for general medical and other specialty visits on a per-telehealth visit basis and expert medical service on a per case basis. We also have certain contracts that generate revenue based solely on a per telehealth visit basis for general medical and other specialty visits. For our D2C behavioral health product, Members purchase access to our professional provider network for an access fee. Accordingly, we record access revenue from access fees and visit fee revenue for general medical, expert medical service and other specialty visits. Other revenue is generated from contracts with Clients for the sale and rental of access to our hosted virtual healthcare platform. Revenues are recognized when we satisfy our performance obligation to stand ready to provide telehealth services which occurs when our Clients and Members have access to and obtain control of the telehealth service. Revenue is recognized in an amount that reflects the consideration that is expected in exchange for the service and this may include a variable transaction price as the number of Members may vary from the initial billing. We estimate this amount based on historical experience, which is recorded as a component of revenue. For other revenue which primarily includes virtual healthcare devices, our performance obligation is satisfied when the equipment is provided to the Client and revenue is recognized at a point in time upon shipment. Access revenue accounted for 79% of our total revenue during the year endedDecember 31, 2020 , and 84% of our total revenue for both of the years endedDecember 31, 2019 and 2018. Access revenue is driven primarily by the number of Clients, the number of Members in a Client's population, the number of services contracted for by a Client and the contractually negotiated prices of our services. Visit fee revenue for general medical, expert medical service and other specialty visits is driven primarily by the number of Clients, the number of Members in a Client's population, Member utilization of our professional provider network services and the contractually negotiated prices of our services. Certain of our contracts include Client performance guarantees and pricing adjustments that are based upon minimum Member utilization and guarantees by us for specific service level performance, Member satisfaction scores, cost savings guarantees and health outcome guarantees. If Client performance guarantees are not met, we record, as a reduction to revenue, an estimate of the amount that will be due at the end of the respective Client's contractual period. We have elected the optional exemption to not disclose the remaining performance obligations of our contracts since substantially all of our contracts have a duration of one year or less and the variable consideration expected to be received over the duration of the contract is allocated entirely to the wholly unsatisfied performance obligations. 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 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. Deferred Costs and Other
Deferred costs and other consist of deferred device costs and deferred contract costs.
Deferred device costs consist of cost of inventory incurred in connection with delivery of services that are deferred and amortized over the shorter of the expected Member enrollment period or the expected device life and recorded
as cost of revenue. 59 Table of Contents Deferred contract costs represent the incremental costs of obtaining a contract with a Client if we expect to recover such costs. The primary example of our costs to obtain a contract include incremental sales commissions to obtain contracts paid to our sales organization. These incremental costs to obtain Client contracts are deferred and then amortized on a straight-line basis over the period of benefit which has been determined to be four years. Amortization expense is included in sales and marketing expenses in the consolidated statement of operations.
Deferred costs and other that are to be amortized within twelve months are recorded to deferred costs and other, current and the remainder is recorded to deferred costs and other, noncurrent on our consolidated balance sheets.
Business Combinations We account for our 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 and accelerated grants of stock-based awards 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 our consolidated financial statements
from the date of acquisition. When we issue stock-based or cash awards to an acquired company's shareholders, we evaluate 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, we 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 us 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.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination.Goodwill is not amortized but is tested for impairment annually onOctober 1 or more frequently if events or changes in circumstances indicate that the asset may be impaired. We operate as one reporting unit and the fair value of the reporting unit is estimated using quoted market prices in active markets of our stock. An impairment charge is recognized for the excess of the carrying value of goodwill over its implied fair value.
Our annual goodwill impairment test resulted in no impairment charges in any of the periods presented in the consolidated financial statements.
Other intangible assets include Client relationships, non-compete agreements, acquired technology, patents and trademarks resulting from business acquisitions, and capitalized software development costs. We amortize such definite-lived intangible assets over their estimated useful lives. We also review the useful lives on a quarterly basis to determine if the period of economic benefit has changed. Client relationships are amortized over a period of 2 to 20 years in relation to expected future cash flows, while non-compete agreements are amortized over a period of 1.5 to 5 years using the straight-line method. Trademarks are amortized over 3 to 15 years using the straight-line method. Technology is amortized over 5 to 7 years using the straight-line method. Patents are amortized over 3 years using the straight-line method. Capitalized software development costs are amortized over 3 to 5 years using the straight-line method. 60 Table of Contents Definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. If the carrying value of an intangible asset exceeds its fair value, an impairment charge would be recognized in an amount equal to the amount by which the carrying value of the intangible asset exceeds its fair value. There were no events or changes in circumstances that would indicate that the carrying value of the definite-lived intangible assets may not be recoverable during the years endedDecember 31, 2020 , 2019 or 2018. Convertible Senior Notes Convertible Senior Notes (the Notes) and the Livongo Notes that we agreed to guarantee (the Livongo Notes) are accounted for in accordance with FASB ASC Subtopic 470-20, Debt with Conversion and Other Options. Pursuant to ASC Subtopic 470-20, issuers of certain convertible debt instruments, such as the Notes and the Livongo Notes, that have a net settlement feature and may be settled wholly or partially in cash upon conversion are required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The carrying amount of the liability component of the instrument is computed by estimating the fair value of a similar liability without the conversion option using an income-based approach. For the income-based approach, we use a convertible bond lattice model that includes assumptions such as volatility and the risk-free rate. The amount of the equity component is then calculated by deducting the fair value of the liability component from the principal amount of the Notes or the fair value of the total Livongo Notes assumed on consummation of the merger, as applicable. The difference between the principal amount and the liability component represents a debt discount that is amortized to interest expense over the contractual term of the Notes or the Livongo Notes using an effective interest rate method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the issuance costs related to the Notes, the allocation of issuance costs, if applicable, incurred between the liability and equity components were based on their relative values. Stock-Based Compensation Stock-based compensation for stock options and restricted stock units granted is measured based on the grant date fair value of the awards and recognized on a straight-line basis over the period during which the employee is required to perform services in exchange for the award (generally the vesting period of the award). We estimate the fair value of employee stock options using the Black-Scholes option-pricing model, except as noted. Stock-based compensation for performance stock units ("PSU") granted is measured based on the grant- date fair value of the awards and recognized on an accelerated tranche by tranche basis over the period during which the employee is required to perform services in exchange for the award (generally the vesting period of the award). The ultimate number of PSUs that are issued to an employee is the result of the actual performance of the Company at the end of the performance period compared to the performance conditions and can range from 50% to 225% of the initial grant. For stock-based compensation assumed in the Livongo merger, theMonte Carlo valuation model was the most suitable for valuation of options for the replaced and replacement awards from the merger. Our Employee Stock Purchase Plan ("ESPP") permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. Under the ESPP, we may specify offerings with durations of not more than 27 months, and may specify shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of its common stock will be purchased for employees participating in the offering. An offering may be terminated under certain circumstances. The price at which the stock is purchased is equal to the lower of 85% of the fair market value of the common stock at the beginning of an offering period or on the date of purchase.
Components of Results of Operations
Cost of Revenue (exclusive of depreciation and amortization, which is shown separately)
Cost of revenue (exclusive of depreciation and amortization, which is shown separately) primarily consists of fees paid to the physicians and other health professionals in our provider network; product cost; costs incurred in connection with our provider network operations and data center activities, which include employee-related expenses
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(including salaries and benefits), costs related to Client support; provider network, medical records, magnetic resonance imaging, medical lab tests, translation, postage, medical malpractice insurance, and deferred device costs. Cost of revenue (exclusive of depreciation and amortization, which is shown separately) is driven primarily by the number of general medical visits, expert medical services and other specialty visits completed in each period and are closely correlated or directly related to delivery of our solutions and monthly subscription fees. Many of the elements of the cost of revenue (exclusive of depreciation and amortization, which is shown separately) are relatively variable, and can be reduced in the near-term to offset any decline in our revenue. Our business and operational models are designed to be highly scalable and leverage variable costs to support revenue-generating activities. Cost of revenue (exclusive of depreciation and amortization, which is shown separately) does not include an allocation of depreciation and amortization.
Advertising and Marketing Expenses
Advertising and marketing expenses consist primarily of costs of digital advertisements, personnel and related expenses for our marketing staff and communications materials that are produced for Member acquisition and to generate greater awareness and utilization among our Clients and Members. Marketing costs also include third-party independent research, trade shows and brand messages, public relations costs and stock-based compensation for our advertising and marketing employees. Our advertising and marketing expenses exclude certain allocations of occupancy expense as well as depreciation and amortization. We expect our advertising and marketing expenses to increase for the foreseeable future as we continue to increase the size of our digital and media advertising and marketing operations including Member acquisition and engagement activities and expand into new products and markets. Our advertising and marketing expenses will fluctuate as a percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and extent of our advertising campaigns and marketing expenses. We will continue to invest in advertising and marketing by promoting our brands through a variety of marketing and public relations activities. Sales Expenses Sales expenses consist primarily of employee-related expenses, including salaries, benefits, commissions, employment taxes, travel and stock-based compensation costs for our employees engaged in sales, account management and sales support in addition to commissions paid to external brokers. Our sales expenses exclude certain allocations of occupancy expense as well as depreciation and amortization. We expect our sales expenses to continue to increase in the short-to-medium-term as we strategically invest to expand our business and to capture an increasing amount of our market opportunity.
Technology and Development Expenses
Technology and development expenses include personnel and related expenses for software engineering, information technology infrastructure, security and compliance, product development and support for our efforts to add new features and ensure the reliability and scalability of our existing solutions. Technology and development expenses also include outsourced software engineering services, the costs of operating our on-demand technology infrastructure, licensed applications and stock-based compensation for our technology and development employees. Our technology and development expenses exclude certain allocations of occupancy expense as well as depreciation and amortization. We expect our technology and development expenses to increase for the foreseeable future as we continue to invest in the development of our technology platform. Our technology and development expenses may fluctuate as a percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and extent of our technology and development expenses. Historically, the majority of our technology and development costs have been expensed, except those costs that have been capitalized as software development costs.
Legal and Regulatory Expenses
Legal and regulatory expenses include professional fees incurred and settlements. Our legal and regulatory expenses exclude certain allocations of personnel and related expenses, occupancy expense as well as depreciation and amortization. 62 Table of Contents
Acquisition and Integration Related Costs
Acquisition and integration related 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.
General and Administrative Expenses
General and administrative expenses include personnel and related expenses of, and professional fees incurred by our executive, finance, legal, business development, operations and human resources departments. They also include stock-based compensation costs related to our board of directors and our employees and most of the facilities costs including utilities and facilities maintenance. Our general and administrative expenses exclude any allocation of depreciation and amortization. We expect our general and administrative expenses to increase for the foreseeable future as we continue to grow our business. However, we expect our general and administrative expenses to decrease as a percentage of our total revenue over the next several years. Our general and administrative expenses may fluctuate as a percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and extent of our general and administrative expenses.
Depreciation and Amortization
Depreciation and amortization consist primarily of depreciation of fixed assets, amortization of capitalized software development costs and amortization of acquisition-related intangible assets.
Amortization of Warrants and Loss on Extinguishment of Debt
Amortization of warrants and loss on extinguishment of debt consists of costs associated with debt refinances including the write off of origination and termination financing fees and recognition of the fair value of warrants included with the loan facilities.
Foreign Currency The functional currency for each of our foreign subsidiaries is the local currency. All assets and liabilities denominated in a foreign currency are translated intoU.S. dollars at the exchange rate on the balance sheet date. Revenues and expenses are translated at the weighted average exchange rate during the period. Cumulative translation gains or losses are included in stockholders' equity as a component of accumulated other comprehensive income (loss). We have not utilized hedging strategies with respect to such foreign exchange exposure. Interest Expense, Net
Interest expense, net consists of interest costs associated with our bank, other debt and amortization of debt issuance costs and costs associated with the Notes and Livongo Notes, net of interest earned on cash and cash equivalents and short-term marketable securities as well as foreign exchange gain or loss related to transactions in currencies other than the local functional currency. Income Tax Provision We follow the provisions of the accounting guidance on accounting for income taxes which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided to reduce the deferred tax asset to a level which, more likely than not, will be realized. We have recorded deferred tax liabilities arising principally from 63
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acquired intangible assets in theU.S. and in foreign jurisdictions. We have provided a valuation allowance for certain of ourU.S. and foreign deferred tax assets atDecember 31, 2020 , 2019 and 2018, as it is more likely than not that these assets will not be realized in the future. In 2020, we released a portion of the valuation allowance against the deferred tax assets attributable to ourU.S. NOLs as the acquired intangibles from theInTouch Health and Livongo acquisitions serve as a source of income for which we, more likely than not, will be able to realize the benefits of the deferred tax assets against.
Consolidated Results of Operations
The following table sets forth our consolidated statement of operations data for the years endedDecember 31, 2020 , 2019 and 2018 and the dollar and percentage change between the respective periods (dollars in thousands): Year Ended December 31, 2020 2019 2018 $ Variance % $ Variance % $ Revenue$ 1,093,962 $ 540,655 98 %$ 553,307 $ 135,400 32 %$ 417,907 Expenses: Cost of revenue (exclusive of depreciation and amortization, which is shown separately below) 390,829 206,364 112 % 184,465 55,730 43 % 128,735 Operating expenses: Advertising and marketing 226,146 116,449 106 % 109,697 24,588 29 % 85,109 Sales 154,052 89,137 137 % 64,915 5,761 10 % 59,154 Technology and development 164,941 100,297 155 % 64,644 10,271 19 % 54,373 Legal and regulatory 8,876 2,114 31 % 6,762 2,781 70 % 3,981 Acquisition and integration related costs 88,236 81,616 1,233 % 6,620 (3,771) -36 % 10,391 Gain on sale 0 0 NM % 0 5,500 -100 % (5,500) General and administrative 497,808 340,114 216 % 157,694 40,778 35 % 116,916 Depreciation and amortization 69,495 30,543 78 % 38,952 3,350 9 % 35,602 Total expenses 1,600,383 966,634 153 % 633,749 144,988 30 % 488,761 Loss from operations (506,421) (425,979) 530 % (80,442) (9,588) 14 % (70,854) Loss on extinguishment of debt 9,077 9,077 NM % 0 0 NM % 0 Interest expense, net 60,495 31,482 109 % 29,013 2,901 11 % 26,112 Net loss before taxes (575,993) (466,538) 426 % (109,455) (12,489) 13 % (96,966) Income tax (benefit) expense (90,857) (80,266) 758 % (10,591) (10,709) NM % 118 Net loss$ (485,136) $ (386,272) 391 %$ (98,864) $ (1,780) 2 %$ (97,084) NM - not meaningful 64 Table of Contents
EBITDA and Adjusted EBITDA
The following table reconciles net loss to EBITDA and Adjusted EBITDA for the
years ended
Year Ended December 31, 2020 2019 2018 Net loss$ (485,136) $ (98,864) $ (97,084) Add:
Loss on extinguishment of debt 9,077 0
0 Interest expense, net 60,495 29,013 26,112 Income tax benefit (90,857) (10,591) 118
Depreciation and amortization 69,495 38,952
35,602 EBITDA(1) (436,926) (41,490) (35,252) Stock-based compensation 475,531 66,702 43,769 Gain on sale 0 0 (5,500)
Acquisition and integration related costs 88,236 6,620
10,391 Adjusted EBITDA(1)$ 126,841 $ 31,832 $ 13,408
(1) Non-
To supplement our financial information presented in accordance with generally accepted accounting principles inthe United States , orU.S. GAAP, we use EBITDA and Adjusted EBITDA, which are non-U.S. GAAP financial measures, to clarify and enhance an understanding of past performance. We believe that the presentation of these financial measures enhances an investor's understanding of our financial performance. We further believe that these financial measures are useful financial metrics to assess our operating performance from period-to-period by excluding certain items that we believe are not representative of our core business. We use certain financial measures for business planning purposes and in measuring our performance relative to that of our competitors. We utilize Adjusted EBITDA as the primary measure of our performance. EBITDA consists of net loss before interest, foreign exchange gain or loss, taxes, depreciation and amortization and loss on extinguishment of debt. We believe that making such adjustment provides investors meaningful information to understand our results of operations and the ability to analyze financial and business trends on a period-to-period basis. For presentation purposes, foreign exchange gain or loss is included in interest expense, net in our consolidated statement of operations. Adjusted EBITDA consists of net loss before interest, foreign exchange gain or loss, taxes, depreciation and amortization, stock-based compensation, gain on sale, loss on extinguishment of debt, and acquisition and integration related costs. We believe that making such adjustment provides investors meaningful information to understand our results of operations and the ability to analyze financial and business trends on a period-to-period basis. We believe the above financial measures are commonly used by investors to evaluate our performance and that of our competitors. However, our use of the terms EBITDA and Adjusted EBITDA may vary from that of others in our industry. Neither EBITDA nor Adjusted EBITDA should be considered as an alternative to net loss before taxes, net loss, loss per share or any other performance measures derived in accordance withU.S. GAAP as measures of performance. EBITDA and Adjusted EBITDA have important limitations as analytical tools and you should not consider them in isolation or as a substitute for analysis of our results as reported underU.S. GAAP. Some of these limitations are:
• EBITDA and Adjusted EBITDA do not reflect the significant interest expense on
our debt; • EBITDA and Adjusted EBITDA eliminate the impact of income taxes on our results of operations; 65 Table of Contents
• EBITDA and Adjusted EBITDA do not reflect the significant loss on
extinguishment of debt;
• Adjusted EBITDA does not reflect the significant acquisition and integration
related costs related to mergers and acquisitions;
• Adjusted EBITDA does not reflect the significant gain on sale of certain
non-core Client contracts;
• Adjusted EBITDA does not reflect the significant non-cash stock compensation
expense which should be viewed as a component of recurring operating costs; and
other companies in our industry may calculate EBITDA and Adjusted EBITDA
• differently than we do, limiting the usefulness of EBITDA and Adjusted EBITDA
as comparative measures.
In addition, although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and both EBITDA and Adjusted EBITDA do not reflect any expenditures for such replacements. We compensate for these limitations by using EBITDA and Adjusted EBITDA along with other comparative tools, together withU.S. GAAP measurements, to assist in the evaluation of operating performance. SuchU.S. GAAP measurements include net loss, net loss per share and other performance measures. In evaluating these financial measures, you should be aware that in the future we may incur expenses similar to those eliminated in this presentation. Our presentation of EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.
Consolidated Results of Operations
We completed our acquisitions of Livongo onOctober 30, 2020 , InTouch onJuly 1, 2020 , MedecinDirect onApril 30, 2019 , Advance Medical onMay 31, 2018 and Best Doctors onJuly 14, 2017 . The results of operations of the aforementioned acquisitions have been included in our audited consolidated financial statements included in this Form 10-K from their respective acquisition dates. Revenue. Total revenue was$1,094.0 million including$128.3 million from InTouch and Livongo for the year endedDecember 31, 2020 , compared to$553.3 million during the year endedDecember 31, 2019 , an increase of$540.7 million , or 98%. Excluding the impact of the InTouch and Livongo acquisitions, revenue increased 75%, reflecting the acceleration of the adoption of virtual care stemming from the COVID-19 pandemic and our broad momentum to transform the healthcare experience. The increase in revenue was significantly driven by an increase in new Clients and the number of new Members generating additional subscription access fees and visit fees. The number of paid Members increased by 41% fromDecember 31, 2019 toDecember 31, 2020 . Revenue from theU.S. subscription access fees was$737.4 million for the year endedDecember 31, 2020 compared to$356.7 million for the year endedDecember 31, 2019 . We generated$124.4 million of international subscription access fees for the year endedDecember 31, 2020 and$106.6 million for the year endedDecember 31, 2019 . We completed approximately 10.6 million visits, representing$206.9 million of visit fees for the year endedDecember 31, 2020 , compared to 4.1 million visits, representing$90.0 million of visit fees during the year endedDecember 31, 2019 , an increase of$116.9 million , or 130%. Total revenue was$553.3 million including$33.2 million from Advance Medical and MedecinDirect for the year endedDecember 31, 2019 , compared to$417.9 million during the year endedDecember 31, 2018 , an increase of$135.4 million , or 32%. Excluding the impact of Advance Medical and MedecinDirect acquisitions, revenues increased 24%. The increase in revenue was driven by an increase in new Clients and the number of new Members generating additional subscription access fees and visit fees, as well as revenue from the acquisitions of Advance Medical and MedecinDirect. The number of paid Members increased by 57% fromDecember 31, 2018 toDecember 31, 2019 . Revenue from theU.S. subscription access fees was$356.7 million for the year endedDecember 31, 2019 compared to$277.1 million for the year endedDecember 31, 2018 . We generated$106.6 million of international subscription access fees for the year endedDecember 31, 2019 and$73.7 million for the year endedDecember 31, 2018 . We completed 66 Table of Contents approximately 4,138,000 visits, representing$90.0 million of visit fees for the year endedDecember 31, 2019 , compared to 2.6 million visits, representing$90.0 million of visit fees during the year endedDecember 31, 2018 , an increase of$22.9 million , or 34%. Cost of Revenue (exclusive of depreciation and amortization, which is shown separately below). Cost of revenue (exclusive of depreciation and amortization, which is shown separately below) was$390.8 million for the year endedDecember 31, 2020 compared to$184.5 million for the year endedDecember 31, 2019 , an increase of$206.3 million , or 112%. The increase was primarily due to higher Membership and general medical visits resulting in increased provider fees and increased physician network operation center costs, and hiring of additional personnel to manage our provider network operations centers, and to a lesser extent, the impact from the InTouch and Livongo acquisitions. Cost of revenue (exclusive of depreciation and amortization, which is shown separately below) was$184.5 million for the year endedDecember 31, 2019 compared to$128.7 million for the year endedDecember 31, 2018 , an increase of$55.7 million , or 43%. The increase was primarily due to higher general medical visits resulting in increased provider fees and increased physician network operation center costs, and hiring of additional personnel to manage our provider network operations centers, as well as the impact from Advance Medical and MedecinDirect services.
Advertising and Marketing Expenses. Advertising and marketing expenses were$226.2 million for the year endedDecember 31, 2020 compared to$109.7 million for the year endedDecember 31, 2019 , an increase of$116.5 million , or 106%. Excluding the impact from InTouch and Livongo of$33.1 million , this increase primarily consisted of$78.3 million from an increase in Member engagement initiatives, digital and media advertising, sponsorship of professional organizations and trade shows and to a lesser extent, the hiring of additional personnel totaling$5.0 million . Advertising and marketing expenses were$109.7 million for the year endedDecember 31, 2019 compared to$85.1 million for the year endedDecember 31, 2018 , an increase of$24.6 million , or 29%. The increase primarily consisted of$18.1 million from an increase in Member engagement initiatives, digital and media advertising, sponsorship of professional organizations and trade shows, as well as the hiring of additional personnel totaling$5.9 million . Sales Expenses. Sales expenses were$154.1 million for the year endedDecember 31, 2020 compared to$64.9 million for the year endedDecember 31, 2019 , an increase of$89.2 million , or 137%. Excluding the impact from the recent acquisitions of$78.2 million , this increase primarily consisted of increased staffing and employee-related expenses including sales commissions of$14.9 million , partially offset by lower travel and entertainment expenses and other expenses of$4.0 million . Sales expenses were$64.9 million for the year endedDecember 31, 2019 compared to$59.2 million for the year endedDecember 31, 2018 , an increase of$5.8 million , or 10%. Including the impact from the recent acquisitions, this increase primarily consisted of increased staffing and employee-related expenses including sales commissions of$4.7 million and other expenses of$1.3 million . Technology and Development Expenses. Technology and development expenses were$164.9 million for the year endedDecember 31, 2020 compared to$64.6 million for the year endedDecember 31, 2019 , an increase of$100.3 million , or 155%. Excluding the impact from InTouch and Livongo of$74.1 million , this increase resulted primarily from hiring additional personnel totaling$14.9 million , professional fees of$8.5 million , and ongoing projects to improve and optimize our technology platform and other expenses of$2.8 million . Technology and development expenses were$64.6 million for the year endedDecember 31, 2019 compared to$54.4 million for the year endedDecember 31, 2018 , an increase of$10.3 million , or 19%. Including the impact from acquisitions, this increase resulted primarily from hiring additional personnel totaling$7.1 million , professional fees of$2.4 million , and ongoing projects to improve and optimize our technology platform and other expenses of$0.8
million. 67 Table of Contents Legal and Regulatory Expenses. Legal and regulatory expenses were$8.9 million for the year endedDecember 31, 2020 compared to$6.8 million for the year endedDecember 31, 2019 , an increase of$2.1 million , or 31%. This increase resulted primarily from litigation activities largely associated with a class action complaint. Legal and regulatory expenses were$6.8 million for the year endedDecember 31, 2019 compared to$4.0 million for the year endedDecember 31, 2018 , an increase of$2.8 million , or 70%. This increase resulted primarily from litigation activities largely associated with a class action complaint. Acquisition and Integration Related Costs. Acquisition and integration related costs were$88.2 million for the year endedDecember 31, 2020 compared to$6.6 million for the year endedDecember 31, 2019 , an increase of$81.6 million . These costs were incurred primarily with the InTouch acquisition and the merger with Livongo as well as in connection with integration activities of prior acquisitions. The 2020 acquisition and integration related costs represent investment banking, financing, legal, accounting, consultancy, integration, fair value changes related to contingent consideration and certain other non-recurring transaction costs related to mergers and acquisitions. Acquisition and integration related costs were$6.6 million for the year endedDecember 31, 2019 compared to$10.4 million for the year endedDecember 31, 2018 , a decrease of$3.8 million . The 2019 acquisition and integration related costs represent investment banking, financing, legal, accounting, consultancy, integration, fair value changes related to contingent consideration and certain other non-recurring transaction costs related to mergers and acquisitions. The 2018 integration related costs represent legal, personnel, re-branding and professional related fees for theMay 2018 acquisition of Advance Medical and theJuly 2017 acquisition of Best Doctors.
Gain on Sale. Gain on sale of
General and Administrative Expenses. General and administrative expenses were$497.8 million for the year endedDecember 31, 2020 compared to$157.7 million for the year endedDecember 31, 2019 , an increase of$340.1 million , or 216%. Excluding the impact from the InTouch and Livongo acquisitions of$283.4 million , this increase was driven in part by an increase in employee-related expenses of approximately$23.1 million , primarily due to an increase in stock-compensation expense and growth in overall full time employee headcount reflecting the acceleration of the adoption of virtual care stemming from the COVID-19 pandemic and our broad momentum to transform the healthcare experience. Costs incurred in our provider network operations centers in connection with enhancing our Member services increased to$14.7 million for the year endedDecember 31, 2020 from$5.8 million for the year endedDecember 31, 2019 , an increase of$8.9 million . Professional fees, increased by$3.1 million for the year endedDecember 31, 2020 as compared toDecember 31, 2019 . Other expenses, which include office-related charges, bank charges, therapist recruiting, liability insurance and bad debt expenses, increased in total to$51.4 million for the year endedDecember 31, 2020 from$29.8 million for the year endedDecember 31, 2019 , an increase of$21.6 million , reflecting the impact from business growth, including bank charges, therapist recruiting, credentialing, liability insurance, bad debt and others. General and administrative expenses were$157.7 million for the year endedDecember 31, 2019 compared to$116.9 million for the year endedDecember 31, 2018 , an increase of$40.8 million , or 35%. Including the impact from acquisitions, this increase was driven by an increase in employee-related expenses of approximately$29.7 million , primarily due to an increase in stock-compensation expense and growth in overall full time employee headcount. Costs incurred in our provider network operations centers in connection with enhancing our Member services increased to$5.8 million for the year endedDecember 31, 2019 from$2.6 million for the year endedDecember 31, 2018 , an increase of$3.2 million . Professional fees, increased by$2.5 million for the year endedDecember 31, 2019 as compared to the year endedDecember 31, 2018 . Other expenses, which include office-related charges and bank charges, severance costs, lease costs and bad debt expenses, increased in total to$29.8 million for the year endedDecember 31, 2019 from$24.5 million for the year endedDecember 31, 2018 , an increase of$5.3 million and primarily reflecting the impact from the acquisitions.
Depreciation and Amortization. Depreciation and amortization were
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78%. This increase was due to additional amortization expense primarily related to acquisition-related intangible assets that increased from$319.8 million atDecember 31, 2019 to$2,183.4 million atDecember 31, 2020 and an increase in depreciation expense on an increased base of depreciable fixed assets that increased from$26.1 million atDecember 31, 2019 to$50.5 million atDecember 31, 2020 . Depreciation and amortization were$39.0 million for the year endedDecember 31, 2019 compared to$35.6 million for the year endedDecember 31, 2018 , an increase of$3.4 million , or 9%. This increase was due to additional amortization expense primarily related to acquisition-related intangible assets that increased from$305.7 million atDecember 31, 2018 to$319.8 million atDecember 31, 2019 and an increase in depreciation expense on an increased base of depreciable fixed assets that increased from$22.4 million atDecember 31, 2018 to$26.1 million atDecember 31, 2019 .
Interest Expense, Net. Interest expense, net consists of interest costs and amortization of debt discount associated with our bank debt, the Notes, and the Livongo Notes, interest income from cash and cash equivalents and short-term investments in marketable securities as well as foreign exchange gain or loss. Interest expense, net was$60.5 million and$29.0 million for the years endedDecember 31, 2020 and 2019, respectively. The increase in interest expense primarily is associated with the 2027 Notes issued inMay 2020 and Livongo Notes that the Company agreed to guarantee inOctober 2020 .
Interest expense, net was
Income tax benefit. Income tax benefit was$(90.9) million for the year endedDecember 31, 2020 compared to$(10.6) million benefit for the year endedDecember 31, 2019 , the increased tax benefit largely reflects the recognition of current period losses due the partial release of theU.S valuation allowance due to acquired intangibles from the purchases ofInTouch Health and Livongo as well as increased excess stock-based compensation deductions. The income tax benefit of$(10.6) million for the year endedDecember 31, 2019 largely reflects an$(8.5) million income tax benefit associated with the intercompany transfer of aU.S. subsidiary from a foreign owned subsidiary to theU.S. parent while the Company was in a significant valuation allowance position.
Liquidity and Capital Resources
The following table presents a summary of our cash flow activity for the periods set forth below (in thousands):
Year Ended December 31, 2020 2019 2018 Consolidated Statements of Cash Flows Data Net cash (used in) provided by operating activities$ (53,511) $ 29,869 $ (4,860) Net cash (used in) provided by investing activities (590,975) 25,013 (257,496) Net cash provided by financing activities 859,136 35,094 645,612 Total$ 214,650 $ 89,976 $ 383,256 Our principal sources of liquidity were cash and cash equivalents, comprised of money market funds and marketable securities, totaling$733.3 million , including restricted cash of$62.6 million as ofDecember 31, 2020 . Additionally, we had short-term marketable securities of$53.2 million as ofDecember 31, 2020 . During 2020 we experienced positive Adjusted EBITDA and we anticipate increasing positive Adjusted EBITDA results for 2021. We believe that our existing cash and cash equivalents and short-term marketable securities will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements will depend on many factors including our growth rate, contract renewal activity, number of visits, the timing and extent of spending to support product development efforts, our expansion of sales and marketing activities, the introduction of new and enhanced services offerings and the continuing market acceptance of telehealth. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies and intellectual property 69 Table of Contents
rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition and results of operations would be adversely affected.
Historically, we have financed our operations primarily through sales of equity securities, debt issuance and bank borrowings.
OnOctober 30, 2020 , we completed the merger with Livongo. Upon completion of the merger, each share of Livongo's common stock converted into the right to receive 0.5920 shares of our 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 ofOctober 29, 2020 . The total consideration 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 ofTeladoc Health's common stock valued at approximately$12,981.6 million onOctober 30, 2020 . Livongo is a leading provider to empower people with chronic conditions to live better and healthier lives. OnOctober 30, 2020 , as part of the Livongo acquisition, we agreed to guarantee Livongo's obligations under its$550.0 million aggregate principal amount of convertible senior notes due 2025, which had been issued by Livongo onJune 4, 2020 , prior to our acquisition of Livongo. The Livongo Notes bear cash interest at a rate of 0.875% per year, payable semi-annually in arrears onJune 1 andDecember 1 of each year. The Livongo Notes will mature onJune 1, 2025 . OnJuly 1, 2020 , we completed the acquisition of InTouch for aggregate consideration of$1,069.8 million , which was comprised of 4.6 million shares of our common stock valued at$903.3 million onJuly 1, 2020 , and$166.5 million of net cash. InTouch is a leading provider of enterprise telehealth solutions for hospitals and health systems. OnMay 19, 2020 , we issued, at par value,$1 billion aggregate principal amount of 1.25% convertible senior notes due 2027 (the 2027 Notes). The 2027 Notes bear cash interest at a rate of 1.25% per year, payable semi-annually in arrears onJune 1 andDecember 1 of each year, beginning onDecember 15, 2020 . The 2027 Notes will mature onJune 1, 2027 . The net proceeds to the Company from the offering were$975.9 million after deducting offering costs of approximately$24.1 million .
On
OnJuly 26, 2018 , we completed a follow-on public offering (the July Offering) in which we issued and sold 5,000,000 shares of common stock, at an issuance price of$66.28 per share. We received net proceeds of$330.9 million after deducting offering expenses of$0.5 million .
On
OnMay 8, 2018 , we issued, at par value,$287.5 million aggregate principal amount of 1.375% convertible senior notes due 2025 (the 2025 Notes). The 2025 Notes bear cash interest at a rate of 1.375% per year, payable semi-annually in arrears onMay 15 andNovember 15 of each year. The 2025 Notes will mature onMay 15, 2025 . The net proceeds to the Company from the offering were$279.1 million after deducting the initial purchasers' discounts, commissions and offering expenses of approximately$8.4 million . The Company's Senior Secured Revolving Credit Facility was terminated pursuant to its terms effectiveJuly 14, 2020 . There was no amount outstanding as ofDecember 31, 2019 other than$2.2 million of letters of credit issued for facility security deposits atDecember 31, 2019 . In addition, the acquired fair value of the assumed indebtedness of$10.0 million in connection with Livongo merger was paid in full and there was no amount outstanding as of December
31, 2020. 70 Table of Contents
See Note 12, "Convertible Senior Notes" of the Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K for additional information on the Notes and the Livongo Notes.
We were in compliance with all debt covenants at
Cash (Used in) Provided by Operating Activities
Cash flows (used in) provided by operating activities consist of net loss adjusted for certain non-cash items and changes in assets and liabilities. Cash (used in) provided by operating activities was$(53.5) million and$29.9 million for the years endedDecember 31, 2020 and 2019, respectively. The year-over-year decrease was substantially driven by higher payment of acquisition and integration related costs, as well as costs for strategic investments in personnel, technology and Member engagement. This was partially offset by higher revenues and improved operating leverage. Cash flows provided by (used in) operating activities consist of net loss adjusted for certain non-cash items and changes in assets and liabilities. Cash provided by (used in) operating activities was$29.9 million and$(4.9) million for the years endedDecember 31, 2019 and 2018, respectively. The year-over-year increase was primarily driven by higher revenues and improved operating leverage, partially offset by higher costs for strategic investments in personnel, technology and Member engagement. Our primarily uses of cash from operating activities are for the payment of cash compensation expenses, providers fee, inventory, insurance, office expenses, technology costs, market data costs, interest expense and acquisition and integration costs. Historically, the payment of cash for compensation and benefits is at its highest level in the first quarter when we pay discretionary employee compensation related to the previous fiscal year.
Cash (Used in) Provided by Investing Activities
Cash used in investing activities was
Cash provided by investing activities was$25.0 million for the year endedDecember 31, 2019 . Cash provided by investing activities consisted of proceeds from short-term marketable securities of$52.1 million partially offset by investment in capital expenditure totaling$3.5 million , investments in capitalized software development costs of$7.4 million , investment in securities of$5.0 million and acquisition of businesses of$11.2 million .
Cash Provided by Financing Activities
Cash provided by financing activities for the year endedDecember 31, 2020 was$859.1 million . Cash provided by financing activities consisted of$975.9 million of net cash proceeds from the issuance of the 2027 Notes,$91.7 million of proceeds from sale of the capped call associated with the Livongo Notes,$54.3 million of proceeds from the exercise of employee stock options,$4.7 million of proceeds from participants in the employee stock purchase plan,$6.0 million of proceeds from advances from financing companies offset by$228.2 million of cash used in the repurchase of 2022 Notes,$8.6 million from a net change in payments from customers against advances from financing companies, payment of$10.0 million assumed indebtedness in connection with the Livongo merger and$26.7 million of timing associated with net cash paid for tax withholding for stock-based compensation. Cash provided by financing activities for the year endedDecember 31, 2019 was$35.1 million . Cash provided by financing activities consisted of$33.3 million of proceeds from the exercise of employee stock options and$3.4 million of proceeds from participants in the employee stock purchase plan, partially offset by$1.6 million for withholding taxes for stock-based awards. OnJune 4, 2020 , the Livongo Notes referred to in Note 12 to the consolidated financial statements were issued on an unsecured basis by Livongo Health, Inc. In connection with the acquisition of Livongo byTeladoc Health, Inc. onOctober 30, 2020 ,Teladoc Health, Inc. became the parent guarantor of the Livongo Notes. The guarantee is full and 71 Table of Contents unconditional and ranks equally in right of payment with all existing and future unsecured senior indebtedness. As disclosed below, summary financial information is presented forTeladoc Health, Inc. , as Guarantor, excluding its consolidated subsidiaries (other than Livongo), and Livongo Health, Inc., as the Issuer, excluding its consolidated subsidiaries, collectively referred to as theObligor Group . The summary financial information of theObligor Group is presented on a combined basis and transactions between the combined entities have been eliminated and investments in and equity in earnings from non-guarantor subsidiaries have been excluded. Financial information for non-guarantor entities has been excluded. For the year endedDecember 31, 2020 , revenue of theObligor Group was$350.2 million , operating loss was$(578.2) million , net loss before taxes was$(647.4) million and net loss was$(560.8) million . As ofDecember 31, 2020 , current assets of theObligor Group were$809.8 million , inter-company receivables were$302.5 million , total assets were$17,459.5 million , current liabilities were$199.7 million , inter-company payables were$49.5 million and total liabilities were$1,716.3 million .
Contractual Obligations and Commitments
The following summarizes our contractual obligations as ofDecember 31, 2020 (in thousands): Payment Due by Period Less than 1 to 3 4 to 5 More than Total 1 Year Years Years 5 Years Operating leases$ 63,265 $ 14,192 $ 28,106 $ 20,967 $ 0 Non-cancelable purchase commitments 9,962 8,130 1,832 0 0 Debt obligations under the Convertible Notes 1,873,550 46,762 0 826,788 1,000,000 Interest associated with the Convertible Notes 128,821 22,522
42,922 42,236 21,141 Total$ 2,075,598 $ 91,606 $ 72,860 $ 889,991 $ 1,021,141 Our existing office and hosting co-location facilities lease agreements provide us with the option to renew and generally provide for rental payments on a graduated basis. Our future operating lease obligations would change if we entered into additional operating lease agreements as we expand our operations and if we exercised the office and hosting co-location facilities lease options. The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions and the approximate timing of the transaction. Non-cancelable purchase commitments include inventory purchases, cloud-based software contracts and other goods and services. Obligations under contracts that we can cancel without a significant penalty are not included in the table above. For abandoned facilities, the above contractual obligation schedule does not reflect any realized or potential sublease revenue.
Off-Balance Sheet Arrangements
During the periods presented, we did not have, nor do we currently have, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are therefore not exposed to the financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships.
Recently Issued and Adopted Accounting Pronouncements
InDecember 2019 , theFinancial Accounting Standards Board , or FASB issued Accounting Standards Update No. 2019-12, "Simplification of Income Taxes (Topic 740) Income Taxes," or ASU 2019-12. The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplifyU.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for public companies for annual periods beginning afterDecember 15, 2020 , including interim periods within those fiscal years. We early-adopted ASU 2019-12 in our consolidated financial statements and disclosures effectiveJanuary 1, 2020 , with no material impact to the financial statements. 72 Table of Contents InJanuary 2017 , the FASB issued Accounting Standards Update No. 2017-04, "Goodwill Simplifications (Topic 350)" or ASU 2017-04. ASU 2017-04 simplifies the test for goodwill impairment. The new guidance eliminates Step 2 from the goodwill impairment test as currently prescribed in GAPP. This ASU is the result of the FASB project focused on simplifications to accounting for goodwill. The new guidance was effective for the first quarter of 2020 and was early adopted in the quarter-endedDecember 31, 2019 . InJune 2016 , the FASB issued Accounting Standards Update No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," or ASU 2016-13. The amendments in ASU 2016-13 introduce an approach based on expected losses to estimated credit losses on certain types of financial instruments, modify the impairment model for available-for-sale debt securities and provide for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The FASB issued Accounting Standards Update No. 2018-19, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses," or ASU 2018-19, Accounting Standards Update No. 2019-04, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses," or ASU 2019-04, Accounting Standards Update No. 2019-05, "Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief," or ASU 2019-05, Accounting Standards Update No. 2019-10, "Financial Instruments-Credit Losses (Topic 326): Effective Dates," or ASU 2019-10 and Accounting Standards Update No. 2019-11, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses," or ASU 2019-11. The amendments in these ASUs provide clarifications to ASU 2016-13. The Company adopted ASU 2016-13 and the related clarifications effectiveJanuary 1, 2020 . The adoption did not have a material effect on the Company's consolidated financial statements. InAugust 2018 , the FASB issued Accounting Standards Update No. 2018-15, "Intangibles-Goodwill andOther-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," or ASU 2018-15 Subtopic 350-40, which aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use-software. The standard is effective for fiscal years beginning afterDecember 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. We adopted ASU 2018-15 Subtopic 350-40 effectiveJanuary 1, 2020 . The adoption did not have a material impact on the consolidated financial statements and disclosures.
Consolidated Quarterly Results of Operations
The following table sets forth our quarterly consolidated statement of
operations data for the years ended
(in thousands, except net loss per share data) 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 Revenue$ 128,573 $ 130,276 $ 137,969 $ 156,489 $ 180,799 $ 241,030 $ 288,812 $ 383,321 Expenses: Cost of revenue (exclusive of depreciation and amortization, which is shown separately below) 44,677 41,634
42,799 55,355 72,382 90,780 104,725 122,942 Operating expenses: Advertising and marketing
26,404 26,616
31,321 25,356 32,515 47,578 52,302 93,751 Sales
16,212 15,832
16,120 16,751 17,940 18,687 23,483 93,942 Technology and development
15,987 16,665
15,746 16,246 19,257 23,029 29,958 92,697 Legal and regulatory
1,586 2,019
1,634 1,523 1,222 2,232 2,812 2,610 Acquisition and integration related costs
1,012 1,136
1,995 2,477 3,664 1,627 25,395 57,550 General and administrative
35,982 38,549
38,681 44,482 45,120 54,383 56,930 341,375 Depreciation and amortization
9,600 9,848 9,617 9,887 9,710 9,893 12,932 36,960 Total expenses 151,460 152,299 157,913 172,077 201,810 248,209 308,537 841,827 Loss from operations (22,887) (22,023)
(19,944) (15,588) (21,011) (7,179) (19,725) (458,506) Loss on extinguishment of debt
0 0 0 0 0 7,751 1,227 99 Interest expense, net 6,521 7,211 7,700 7,581 9,303 13,151 17,222 20,819 Net loss before taxes (29,408) (29,234)
(27,644) (23,169) (30,314) (28,081) (38,174) (479,424) Income tax provision (benefit)
742 90 (7,298) (4,125) (711) (2,399) (2,290) (85,457) Net loss (30,150) (29,324) (20,346) (19,044) (29,603) (25,682) (35,884) (393,967) GAAP Net Loss per Share$ (0.43) $ (0.41) $ (0.28) $ (0.26) $ (0.40) $ (0.34) $ (0.43) $ (3.07) Weighted Average Common Shares Outstanding Used in Computing GAAP Net Loss per Share - Basic and Diluted 70,919 71,721 72,151 72,565 73,279 76,513 83,608 128,298 73 Table of Contents
Note: We acquired MedecinDirect on
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