160105 TDOC initiation

Steven A. Rubis [email protected] (214) 706-9451

Stifel Equity Trading Desk (800) 424-8870

Initiation of Coverage

Initiating Coverage with a Hold Rating; Business Model Uncertainty Suggests Caution

We are initiating coverage on the shares of Teladoc, Inc. with a Hold rating. While we respect management and believeTeladoc faces a significant growth runway, we believe there are several risk factors that outweigh the positives. Ourprimary concerns are: (1) business model risk - PMPM fees + Per Visit Fees, (2) client issues, (3) a limited addressablemarket opportunity, (4) the Texas Medical Board standoff, and (5) valuation. We believe we need to seek greater clarityaround our primary concerns and more attractive valuation levels before potentially becoming constructive, all else beingequal.

Why We like Telemedicine. In our view, telemedicine represents an attractive

investment opportunity for three reasons. First, telemedicine in theory represents a

low-cost, outcomes-driven tool that may likely help solve / abate physician access

and physician shortage issues. Second, telemedicine consults should represent a

fraction of the cost of an office / emergency room visit, and drive better, more

efficient care. Lastly, telemedicine remains a nascent industry that theoretically

benefits from a long growth runway, as well as multiple growth levers e.g.,

members, visits, indications, et al. We believe an investment in telemedicine today

presupposes that telemedicine will evolve into a mainstream healthcare tool over

time.

Given Our Affinity Towards Telemedicine, Why Are We Cautious Regarding

Teladoc? We see five areas of primary concern regarding shares of Teladoc. We

believe that the current TDOC model may be more costly than an in-person visit

(see Exhibit 6, and Exhibit 11 and Exhibit 12). Second, we believe competition is

calling into question TDOC’s dual monetization structure (PMPM fees + Per Visit

Fees), and clients are considering / testing alternative models. We believe the total

addressable visit market is more limited than the 417M opportunity cited by

management. In our view, in current form TDOC only truly addresses urgent care

and emergency room visits, which limits addressable visits to well below 100M

annually, and a fraction of the $12B estimate set forth by management (see

Exhibit 27 to Exhibit 34). Third, we are concerned with both revenue and revenue

growth quality, as revenues are highly levered to PMPM fees rather than actual

visits. Poor utilization rates (sub 5% system-wide) vividly illustrate our concern.

Lastly, we believe consensus expectations may be too high as the majority of price

target expectations are almost double the current share price.

Valuation. We believe shares should trade at an EV multiple of 2.5x to 3.5x 2017

revenues. FactSet consensus suggests shares should be valued at 7.0x (a range

of 6.0x to 7.8x) on the same basis. Given our concerns, we cannot justify valuing

Teladoc higher than cornerstone franchises ATHN and MDSO.

Changes Previous Current

Rating Hold

Target Price NA

FY16E EPS — $(1.01)

FY17E EPS — $(0.33)

FY16E Revenue — $118.6

FY17E Revenue — $168.5

Price (01/05/16): $17.99

52-Week Range: $35 – $15

Market Cap.(mm): 697.3

Shr.O/S-Diluted (mm): 38.8

Enterprise Val. (mm): $572.5

Avg Daily Vol (3 Mo): 383,645

LT Debt/Total Cap.: 12.3%

Net Cash/Share: $3.22

Book Value/Share: $4.97

Dividend($ / %) $0.00 / 0.0%

S&P Index 2,012.66

52-week range since shares began trading7/1/15.

EPS 2015E 2016E 2017E

Q1 $(0.43)A $NE $NE

Q2 (0.44)A NE NE

Q3 (0.33)A NE NE

Q4 (0.38) NE NE

FY Dec $(1.58) $(1.01) $(0.33)

Revenue 2015E 2016E 2017E

FY Dec $76.3 $118.6 $168.5

EBITDA 2015E 2016E 2017E

FY Dec $(48.5) $(31.3) $(3.7)

One Year Price Chart January 5, 2016

Teladoc, Inc.

TDOC – NYSE

HoldDigital Healthcare

Stifel does and seeks to do business with companies covered in its research reports. As a result, investors should beaware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors shouldconsider this report as only a single factor in making their investment decision.

All relevant disclosures and certifications appear on pages 40 - 43 of this report.

Investment Rationale

We are initiating coverage on the shares of Teladoc, Inc. with a Hold rating. Our cautious outlook stems from our concerns around business model risk, key clients questioning the company’s value proposition, low utilization rates, a limited total addressable market, muddled reimbursement landscape, concerns about the Texas market, and valuation. In our view, these concerns suggest that a premium valuation is not likely prudent at this time, despite seemingly attractive growth rates. Ultimately, what we see as low revenue quality (per member per month (PMPM) fees significantly overshadow actual usage fees) suggests seemingly attractive growth rates may deteriorate over time. We outline the concerns that comprise our investment hypothesis, below. Business Model Risk. We believe the most significant risk revolves around the sustainability of Teladoc’s dual monetization business model. The company currently monetizes its platform through PMPM subscription fees and per visit consultation fees. According to management, the PMPM fees cover the administrative and back-office coordination Teladoc supports, as well as member engagement services. Currently, Teladoc argues that its telemedicine services drive substantial cost savings compared to traditional in-person visits. The issue is that Teladoc’s cost savings calculations typically include the per visit fee only, and exclude the PMPM fees generated from clients. At issue is the fact that when PMPM fees are included in the cost savings calculation the associated cost savings with Teladoc is significantly less than the company claims, and in some cases could be more costly. Currently, competitors are focused on go-to-market strategies revolving around per visit consult fees only; the competition is trying to disintermediate the PMPM model completely. Cost savings questions and competitive pressures are leading some clients to question the value of the PMPM model. Client Behavior. Due to questions about the inherent cost savings associated with Teladoc’s telemedicine services, clients are beginning to question the PMPM revenue model. First, Teladoc’s cost savings argument seems to breakdown once the ROI analysis moves from solely looking at per visit fees to including PMPM fees, as well. In some instances, Teladoc may be more expensive when including the per visit and PMPM fees in the analysis. We believe the questions around cost savings are causing clients to question the value of Teladoc’s model, especially PMPM fees. Recently, high profile clients, Highmark BlueCross BlueShield and Home Depot, moved away from using Teladoc’s telemedicine services on an exclusive basis. Each entity now offers their employees a choice between Teladoc and Doctors on Demand, which only charges a per visit fee. We believe there is a significant burden of proof on Teladoc to prove the value of the PMPM model. In our view, should competitor models based solely on per visit fees exhibit similar utilization to Teladoc, clients will likely see little value in the PMPM model, thus impairing the long-term sustainability of the PMPM model. We believe client behavior will be a key focal point of FY16. Revenue Quality. Our cautious stance on Teladoc stems in part from our concerns around revenue quality. We believe Teladoc operates a dual monetization model, whereby the company generates revenues from (1) per member per month subscription fees, plus (2) per visit consultation fees. We believe competitors and clients alike are beginning to question the value of the PMPM monetization structure. Teladoc provides member engagement services, tools to drive increased utilization as part of the PMPM structure. In our view, while Teladoc believes it has robust patient engagement and utilization capabilities, the 3% to 4% utilization rates causes skepticism around these claims. We believe current utilization trends suggest relative under-penetration when compared to the company’s total addressable visit market of 417 million visits, and our more conservative estimate of roughly 76 million visits. Today, the majority of revenues are generated from the PMPM pricing structure. We would be more excited about PMPM were the company to completely drop the visit fee monetization structure, or price visits more aggressively. The quality concerns stem from the fact that over 80% of Teladoc’s revenues come from PMPM fees. In our view, the fundamental presupposition associated with telemedicine, and by extension Teladoc, is that such services are supposed to drive a patient shift away from in-person services to telemedicine services. The success and validity of this presupposition is a function of visits and by extension per visit revenues. We potentially would be more constructive on Teladoc if the business exhibited better utilization, better utilization growth, and a more sustainable monetization structure; either PMPM or visit fees only, not the dual structure employed today, all else being equal. A Comment on PMPM versus Per Visit. Ultimately, we do not believe that the PMPM or per visit fee is superior to one another. In our view, the problem facing Teladoc is that the dual monetization structure seems unsustainable in our view. We believe the dual monetization associated with PMPM plus per visit fees harkens

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Teladoc, Inc. (TDOC) January 5, 2016

back to the business models of legacy HCIT vendors who charge hefty installation fees and recurring maintenance fees. We believe the PMPM model would be quite attractive were Teladoc to offer a monetization structure based on a PMPM fee attached to unlimited consults. Additionally, the PMPM fee model plus a more aggressively priced per visit fee schedule (per visit fees less than a typical PCP copay) might work as well. We believe the per visit fee model, ex-PMPM fees, represents the best model, because it provides the clearest cost savings rationalization. Given the sheer size of the total addressable market based on either members or possible visits, we are uncertain as to why Teladoc needs to operate the dual monetization model. As long as clients and competitors question and attack the dual monetization model, we will harbor concerns regarding the long-term sustainability of the dual monetization model. Utilization. Teladoc believes that one of its strengths revolves around generating patient utilization on behalf of its platform for clients, which is monetized via the PMPM subscription model. We estimate that in 2014, Teladoc’s utilization rate was 3.7%, which simplistically assumes every visit in FY14 represented a unique user. Using a factor of 1.36 visits per user, we estimate that the unique user utilization rate was roughly 2.7%. According to management, utilization over the nearest four quarters, excluding one anomalous client, resulted in 6.6% total utilization. Management also suggested that employer or broker clients’ utilization is closer to 13%. Additionally, management claims that the best clients post 40% to 60% utilization rates. Teladoc also points to its capabilities around segmenting and marketing to a client’s patient base. Teladoc’s abilities stem from the data associated with delivering over one million consultations since inception. According to management, Teladoc segments patients at a client into 14 micro segments and filters them up into six macro segments in order to drive better utilization. While one million patient visits are impressive, we believe one million visits are likely too small of a data set to drive robust engagement. In our view, an average visit rate of 1.36 visits suggests consumers do not repeat usage enough to drive significant insight into driving increased utilization. Ultimately, we need to see improved platform utilization based on reported systemwide network trends to potentially be more constructive. Total Addressable Market. A major component of high growth revenue stories revolves around the characteristics of the associated total addressable market opportunity. We believe the majority of investors and Teladoc believe that the company and telemedicine in general faces a vast and significant total addressable market opportunity. The problem we see revolves around the aspirational total addressable market and what we believe may represent the actual total addressable market. We believe that our analysis of Teladoc’s total addressable market is quite informative to the debate around the sustainability of the PMPM monetization model, and whether Teladoc’s dual monetization model (PMPM plus per visit fees) will be sustainable long-term. The bottom line is that we believe Teladoc’s current monetization model unnecessarily complicates things and, in our view, the company would be better served focusing on driving massive utilization and adoption via compelling pricing via the PMPM model. Ultimately, we see the winner in the current era of telemedicine as the vendor most acutely focused on driving adoption via aggressive pricing, which presupposes a very simple monetization structure. In terms of the actual addressable market opportunity, we believe Teladoc faces an opportunity of roughly $2.2 billion to $4.4 billion based on the dual monetization structure. According to the company, Teladoc sees its total addressable market opportunity to be anywhere from $12 billion to $29 billion. Ultimately, we think the company should consider simplifying its monetization model to look more like Netflix in order to drive massive adoption and utilization. We believe the total addressable market opportunity associated with such a business model is between $6.4 billion and $11.4 billion annually. Muddled Reimbursement Landscape. We believe the muddled yet evolving reimbursement landscape continues to represent a headwind to telemedicine adoption. Different government programs exhibit different propensities to reimburse different strands of telemedicine services. Currently, the most reimbursable form of telemedicine revolves around video visits. In our view, the muddled reimbursement landscape contributes to the general lack of awareness of telemedicine among consumers. A major problem facing not only Teladoc, but the telemedicine industry revolves around the fact that most consumers have no idea that telemedicine is an actual benefit within their health plan offering. On a positive note, roughly 26 states currently offer telemedicine private-pay parity laws, and an additional 10 states are working on such legislations. We believe universal private-pay parity will help significantly drive greater awareness, but investors must recognize that telemedicine still faces a steep adoption curve. The bottom line is that while we believe the muddled reimbursement landscape is a near-term headwind, we believe the headwind should abate over time.

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Texas and Telemedicine. A key controversy facing Teladoc revolves around the company’s contentious relationship with the Texas Medical Board that is not likely to go away soon. We note that in April 2015, the Texas Medical Board adopted revisions to rule 190.8, which requires a face-to-face visit occur prior to a physician being able to prescribe medication to patients. Teladoc subsequently filed an anti-trust lawsuit in Federal Court in order to obtain a preliminary injunction against the decision, which was ultimately granted in May 2015. Teladoc notes the preliminary injunction marks the sixth occasion in the past four years whereby the legal system has sided with Teladoc over the Texas Medical Board. While the legal system seems to side with Teladoc, we believe the Texas Medical Board is not likely to change its restrictive stance toward telemedicine. Our view is based on two parts: (1) the medical board will likely continue to see telemedicine as a channel that eases possible drug abuse (the reason for adoption of rule 190.8), and more importantly (2) we believe the State of Texas seems to be fully behind urgent care and stand-alone emergency rooms. Anyone who has recently visited the North Dallas, Texas, suburbs will note that urgent care and stand-alone emergency rooms are as prevalent as convenience stores are in most major metropolitan areas. In terms of the preliminary injunction, the court seemed to rule based on the review of evidence around cost savings, which compared the cost of a physician or emergency room visit to a Teladoc visit. The analysis was used to establish that the Texas Medical Board rule adoption excluded a competitor offering a lower-cost service. We believe this analysis will likely be debated significantly in subsequent legal actions. Our view holds that Teladoc cost savings analysis must include more than the simple per visit fee to establish cost savings. If one utilizes the Beth Israel New York pricing fee (the closest Teladoc gets to Direct-to-Consumer) the typical $40 cost basis for Teladoc increases to the average price of a physician visit or higher. Investors should stay tuned. Underlying Technology Provides Support. While we believe there are reasons to be concerned about Teladoc’s monetization, we also believe the underlying technology of the Teladoc platform seems quite solid. The current Teladoc platform represents the company’s third generation technology platform. Management believes the primary underlying technology advantage of Teladoc revolves around efficient supply and demand matching of patients to physicians that can scale over large patient populations. According to management, most competitors max out near $3 million or $4 million in revenue and are unable to overcome the complexities associated with scaling above these revenue run rates. Furthermore, the underlying administrative platform that facilitates consults represents a key differentiator. To a lesser extent, we believe the high clinical quality associated with Teladoc’s platform may be an extension of its technology. Our one concern around technology revolves around the fact that the majority of Teladoc’s consults seem to be telephonic as the majority of consults originate via call center. Valuation. We believe the fair value for Teladoc shares falls between roughly 2.5x and 3.5x FY17 revenue estimates. We believe the inherent risks and uncertainties in the Teladoc business model, and concerns about revenue quality, more than offset the attractiveness of the perceived revenue growth profile. In terms of digital healthcare and HCIT, we believe that athenahealth (Buy, $158.23) represents the valuation starting point, as we believe it is the best positioned company in the space. Currently, athenahealth trades at roughly 5.9x our 2016 revenue estimate and our $190 target price is based on an EV multiple of 6.8x our 2016 revenue estimate. Risks to our target price include: (1) Volatility around valuation multiples; (2) Lack of successful product innovation; (3) Unforeseen customer attrition; (4) Epocrates integration; (5) Lack of traction around athenaCoordinator Enterprise (aCE); and (6) Lack of adoption of More Disruption Please partners. Additionally, Medidata Solutions (Buy, $47.30) currently trades at an EV multiple of 4.1x our 2017 revenue estimate and our target price of $60 is based on an EV multiple of 5.6x our 2017 revenue estimate. Risks to our target price include: (1) Valuation multiples; (2) Volatility associated with the switch from quarterly to annual guidance; (3) Lack of successful product innovation; (4) Unforeseen customer attrition; (5) A lack of enterprise platform sales; and (6) A deterioration in the biopharma industry. We believe the EV multiple range of 2.5x to 3.0x FY17 revenues may provide an appropriate discount to potentially become constructive on TDOC shares given our concerns, all else being equal. Currently, FactSet shows that 10 sell-side analysts covering Teladoc all rate the shares a Buy with target prices between 6.0x and 7.8x FY17 revenue estimates. We believe consensus valuation assumptions do not accurately reflect the lingering concerns associated with the Teladoc business model. Given the small revenue base and lack of a long-term track record, we believe valuing Teladoc at a premium to either athenahealth or Medidata Solutions does not seem warranted at this time. We would be more comfortable with a premium valuation that is above athenahealth or Medidata Solutions were the business model more clearly levered to actual consults and no doubts about cost savings or monetization model existed.

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Investment Risks

Business Model. We believe a core problem facing Teladoc revolves around the long-term sustainability of operating a per member per month plus a per visit fee monetization model. We believe key clients and competitors are questioning the sustainability of this dual monetization model by attacking Teladoc’s ROI claims. We note that most of Teladoc’s savings claims focus on a per visit fee only, and do not include the per member per month fees charged by the company. High profile clients are beginning to move away from using Teladoc exclusively and allowing competitors to serve their employee and member bases telemedicine services, as well. We believe Teladoc will spend ample time defending the long-term sustainability of its dual monetization business model throughout FY16. Telemedicine Reimbursement. The reimbursement landscape in the United States remains muddled, but evolving. Roughly 26 states currently offer private pay telehealth parity laws, and 10 more have legislation in process. Medicare remains quite restrictive in terms of what telemedicine services it will reimburse, really only chronic care management. Medicaid is actually quite progressive in terms of telemedicine reimbursement, but Medicaid telemedicine reimbursement is muddled due to the nuances of state by state requirements. We believe the reimbursement landscape needs to continue to evolve in order to help drive better utilization at Teladoc and others. User Engagement. We believe the fundamental presupposition of investing in Teladoc holds that telemedicine will become a mainstream service over time. In our view, telemedicine remains a nascent service that faces a steep adoption curve. We see the muddled reimbursement environment and visit cost structure as hurdles to robust utilization and engagement. In our view, long-term sustainability and success of Teladoc and telemedicine hinges on the ability to drive meaningful utilization rates (greater than 10%) and illustrate an ability to cause patients to migrate from in-person visits to telemedicine consults. We believe these trends are still evolving. Cost Savings. Another presupposition of telemedicine revolves around the belief that shifting patients away from in-person visits to telemedicine consults can result in significant cost savings. Currently, the dual monetization model of Teladoc calls this fundamental premise into question. Analyses show that a per visit fee monetization model alone likely saves costs, especially for the employer or health plan. However, an analysis of both a per visit fee model combined with a per member per month fees suggests cost savings are significantly less. Furthermore, we believe providing cost savings to the employer or health plan is not enough to drive robust engagement. Many consumers fail to know or realize that telemedicine may be a free component of their benefits. Additionally, for those who fail to have telemedicine as a health benefit, per visit costs seem to be high compared to a traditional copay. Financial Estimates. We note management has executed on the financial expectations it has set for investors since its July 2015 IPO earlier this year. Nevertheless, we believe financial performance execution remains a key risk, given the business model risk and testing of competitors by high profile clients. Valuation. We believe Teladoc shares should trade between 2.5x and 3.5x our 2017 revenue estimate of $168.5 million on an enterprise value basis. Sell-side consensus suggests shares should trade at a valuation between an EV multiple of 6.0x and 7.8x 2017 revenues of $170 million to $184 million. Given the looming business model risks, as well as our concerns around under-utilization, lack of visit revenues, and a more limited total addressable market than investors believe, suggests consensus valuation expectations are high. In our view, revenue quality concerns offset the attractiveness of the absolute revenue growth rate.

Teladoc Investment Positives

While we are initiating coverage of Teladoc with a cautious view, we recognize that the Teladoc investment story does include positive characteristics. Our view is that the current risks associated with the dual monetization business model and utilization outweighs the investment positives. Nevertheless, we provide an outline of what we see as possible investment positives associated with Teladoc below. Nascent Market. The fact that Teladoc seems to be under-utilized relative to the total addressable market suggests the company may face a long growth runway. Should fundamental concerns abate, the company

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seems well-positioned to benefit from a long-term secular trend revolving around the adoption of telemedicine services. Growth Levers. The Teladoc story seems to have several growth levers as well. These levers range from increasing the member base to driving increased utilization of Teladoc services among its member base. Additional growth levers revolve around adding new indications to its telemedicine services platform, as well as branching into new areas and even expanding addressable clinical use cases. Macro Tailwinds. Should business model concerns abate, we believe Teladoc would be poised to benefit from three strong macro tailwinds. The first revolves around the physician access crisis, which simply holds that Americans are unable to see a physician in a timely manner in many markets. Secondly, Teladoc and telemedicine would be well-positioned to help solve the looming physician shortage crisis that may result in a physician shortage of roughly 46,000 to 90,000 doctors by 2020. Lastly, should Teladoc and telemedicine prove sustainable cost savings associated with telemedicine, we believe Teladoc and its competitors will become essential tools in the effort to significantly reduce the national health expenditure cost burden that faces the U.S. Long-Term Growth Rates. Given the nascent nature of telemedicine, we believe Teladoc may benefit from significant growth for the foreseeable future. We believe the sustainability of strong growth will be a function of business model sustainability and ultimately the ability to drive robust utilization and shift patients from the in-person setting to the telemedicine setting.

Teladoc and the Six Dimension of Digital Healthcare

We believe our six dimensions of digital healthcare rubric provide an objective and unbiased model for evaluating digital healthcare companies. The six dimensions of digital healthcare include: technology, platform, network effects, distribution, analytics, and capital allocation. In our view, Teladoc exhibits many positive characteristics across the six dimensions, but business model risk, pricing issues, and low utilization / visits suggest the company faces some continued development before we can view Teladoc as a core digital healthcare holding. Technology. We take a mixed view of Teladoc’s technology. We believe the complete retooling of the underlying platform several years ago represents a significant positive. At the same time, the fact that the majority of visits are via phone rather than video represents a concern for us. The company utilizes application programming interfaces to connect with several partners. We believe the company’s support of partnering and working with other entities represents a positive. Our concerns around telephonic visits stems from the muddled and evolving reimbursement landscape. We believe the majority of reimbursement seems to be levered to video visits rather than telephonic visits. Based on Teladoc’s documents, 60% of consults at Teladoc are originated in a call center. Of the remaining 40% via web/mobile, roughly 30% are video and 70% are phone. We note that most competitors are focused on facilitating video consults for the most part. Platform. We believe TDOC faces the opportunity of building a robust platform to facilitate telemedicine for patients and providers. Currently, we believe the TDOC story revolves around being a point telemedicine solution driven by member growth, but we believe an ability to illustrate robust utilization and visit growth is essential. The company has developed a solid foundation for matching patients with the best available physician within the TDOC network. Currently, TDOC serves the following indications for its patients: sinusitis, urinary tract infections, pink eye, upper respiratory infections, nasal congestion, bronchitis, allergies, influenza, yeast infections, and cough and cold. Over time, the company expects to build out expertise in several additional areas, including: dermatology, anxiety, smoking cessation, grief counseling, marriage counseling, and sexual health. We note that the company utilizes APIs to connect to several partners including HealthEquity and Castlight Health. The main challenge to unlocking the full value of the platform revolves around business model risks, and an ability to drive more robust utilization / visits. Network Effects. We believe TDOC may benefit from network effects over time, but we find it difficult to see the network effects benefits today. The primary problem is that there is no evidence that initial utilization of the TDOC platform will drive greater utilization of the platform. For the most part, between 1% and 3% of a client

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base seems to utilize Teladoc or a similar telemedicine services platform when offered. Of these telemedicine users, each user generates on average only 1.36 visits per year, and typically 80% of users only use the platform once in a given year. Over time, we believe Teladoc needs to prove that the platform benefits from network effects via increased utilization and greater number of visits among users. Furthermore, we believe the company’s ability to build out expertise in new treatment areas will create a more encompassing platform. As the company builds out its indication offerings, we believe users of TDOC for more basic indications may consider using TDOC for additional services, as well as for additional visits. We believe the company needs to exhibit significant improvement in utilization and visits in order to illustrate possible benefits from network effects. Ultimately, to consider TDOC a true network effects business, we would have to see considerably greater utilization, visit traffic, as well as proof the platform can shift patients away from the in-person setting to the telemedicine setting. Distribution. A major controversy revolves around TDOCs ability to scale, especially in terms of visits and utilization. The company has illustrated scale mostly around membership growth with roughly 12.6 million members. However, utilization is only about 3% and the company is on track to deliver roughly 550,000 visits out of a 417 million total addressable visit market. We believe the more important area of scale revolves around visits rather than members, as the purpose of telemedicine is to move low-acuity care away from the traditional clinic to lower cost channels. In our view, TDOC can likely continue to add members to its membership base, but driving actual visits on the platform will remain difficult. We believe per visit pricing remains too high to drive robust patient engagement, especially when one compares the cost of a visit to a copay, or when an ROI calculation includes not only per visit fees, but also the per member per month fees. A major concern we hold revolves around the fact that we believe Teladoc’s total addressable visit market is likely substantially less than 417 million visits. We believe investors should be concerned about the overall relative under-utilization of Teladoc for physicians visits, and believe the company must illustrate substantially better utilization in order to be more constructive. Additionally, we believe key Teladoc clients (Highmark and Home Depot) are now questioning the business model as these clients are no longer exclusively using Teladoc for telemedicine services. Analytics. From an analytics perspective, we believe the company claims an ability to drive robust user engagement among its enterprise clients. According to the company, Teladoc can use the significant number of cumulative visits and cohort data to better understand and predict the flow of visits. In our view, management believes these abilities justify the PMPM pricing model. Our view is that clients may not necessarily agree with this outlook illustrated by recent actions of Highmark and Home Depot. Capital Allocation. We note that as of September 30, 2015, Teladoc held roughly $152.0 million in cash and cash equivalents. Our view continues to prefer companies reinvesting cash into either R&D or transformative acquisitions over share repurchases. Over the past several years, Teladoc has acquired several businesses which are now part of the company’s telemedicine platform. One concern is that the company’s membership growth may be a function of acquisitions. While we like management’s focus on attempting transformative acquisitions, we view the transactions with skepticism given modest utilization and substantial levels of PMPM related revenues. We outline Teladoc’s major acquisitions below. StatDoctors. Acquired in May 2015, StatDoctors represents an eHealth service company operating a network of board-certified emergency medicine physicians specializing in telemedicine. Teladoc paid roughly $30.5 million, which consisted of $13.7 million in cash and $16.8 million in stock. We believe the asset may help Teladoc further penetrate emergency room and urgent care visits. According to SEC filings, StatDoc generated roughly $2.3 million in revenue in 2014, or roughly 15x 2014 revenues. Better Help. Acquired in January 2015, Teladoc paid roughly $4.5 million for the behavioral health telemedicine platform. The acquisition helps broaden the Teladoc service platform into direct-to-consumer and behavioral health arenas. Better Help operates a network of 800 counselors and all providers have at least three years and 2,000 hours of hands-on experience. Since inception the business has served 200,000 people through 2,000,000 sessions. AmeriDoc. Acquired in May 2014, AmeriDoc is a provider of on-demand healthcare services that provides access to physicians via a cloud-based platform via telephone, secure video, and secure email. We note that AmeriDoc provides 24/7 physician access with unlimited consults and even provides access to pediatricians. The company was founded in 2007 and works with more than 350 physicians. We note that Teladoc paid

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roughly $17.2 million for AmeriDoc. Based on Teladoc’s SEC filings, we note that AmeriDoc generated $3.2 million in revenue in 2013, which suggests Teladoc paid roughly 5.4x 2013 revenues. Consult A Doctor. Acquired in August 2013, Consult A Doctor provides telemedicine services for patients via phones, emails, and video. Based on SEC filings, Teladoc paid roughly $16.6 million for the company. According to Teladoc’s SEC filings, Consult A Doctor generated roughly $3.2 million in revenue for the January 1, 2013 to August 29, 2013 period. The acquisition price equates to roughly 5.2x sales.

Company Overview

Teladoc represents a leading telehealth platform that facilitates the delivery of telemedicine services to employers and health plans, and increasingly health systems. The company provides telemedicine services via its platform to members of the employer and health plan lives they serve. Teladoc’s telemedicine services revolve around providing on-demand healthcare anytime, anywhere, via mobile devices, the Internet, video and phone. The company currently services roughly 12.5 million members and works with 1,000 physicians and 1,500 behavioral health professionals. In Exhibit 1, we provide an overview of some of the key statistical highlights associated with the Teladoc business model. The company boasts a large user base and large client base across employers and health plans, as Teladoc serves 4,000-plus clients of which 160 are Fortune 1000 companies, and the company serves more than 20 health plans. The scale of the plan form is attractive as Teladoc benefits from a 95% member satisfaction rate and a Net Promotor Score above 70. Roughly 92% of patient issues are resolved and the company averages 1,500-plus visits per day. In 2015, Teladoc is on track to provide a telemedicine visit more than once a minute. We note the company also benefits from high revenue visibility. Our primary areas of concern revolve around Teladoc’s 9x ROI for clients (assumes per visit fees only) and the size of the total addressable market based on visits.

Exhibit 1: Teladoc Key Statistics

Source: Company documents

We provide a dashboard of key operating statistics for Teladoc on an annual basis in Exhibit 2. We note that the company may likely continue to benefit from membership growth as new employers and health plans are added as customers. Currently, Teladoc faces pressure around membership growth as Highmark BlueCross BlueShield will no longer use Teladoc exclusively. Additionally, Home Depot will no longer exclusively provide Teladoc to its employees as of January 1, 2016. While we note strong growth rates in terms of total visits, our primary concern remains the significant under-penetration relative to the aspirational total addressable market (417 million visits) and the conservative total addressable market (outpatient and emergency room visits only). Our model estimates utilization rates growing 2.5x between 2013 and 2017E. Given the nascent nature to telemedicine in general, we would expect utilization to increase much faster during this period. Additionally, we estimate the number of unique Teladoc visits and associated penetration in Exhibit 2. We assume a factor of 1.36 visits per member, based on the Health Affairs CALPERS Teladoc study, as well as

12.6 Million Unique Members 95%+ Member Satisfaction +90% Revenue Visibility

4,000+ Total Clients 92% of Patient Issues Resolved 104% Avg. Net Dollar Retention

160 Fortune 1000 Clients 1,500+ Average Visits Per Day +9x Client ROI

20+ Health Plan Clients <10 Minute Physician Response Time 417 Million Annual Addressable Visits

Teladoc Key Statistics

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additional studies. We divide the total number of visits by 1.36 in order to obtain our estimated unique visit count. Based on unique visits, utilization is estimated to grow from 1.5% in 2013 to roughly 3.8% in 2017E. Given the nascent characteristics of telemedicine, we would expect utilization to improve at a much faster rate.

Exhibit 2: Teladoc Operating Dashboard

Source: Company documents and Stifel estimates

Currently, the majority of Teladoc visits are for low-acuity treatments. In Exhibit 3, we provide a list of the key indications Teladoc currently serves via its telemedicine services. Additionally, we show certain indications the company’s has identified as growth areas for the future. Currently, Teladoc serves several easily treatable, low-acuity ailments via its telemedicine platform. We believe the key to the long-term Teladoc investment opportunity involves the company expanding into treating even higher-acuity issues of chronic care management. Management believes the near-term growth opportunity revolves around behavioral health. The key growth areas are dermatology, anxiety, grief counseling, marriage counseling, sexual health, and smoking cessation.

Exhibit 3: Teladoc Common Areas of Treatment

Source: Company documents and Stifel formatting

Teladoc’s telemedicine services follow a five step process: register, request, connect, visit, and resolve. According to the company, Teladoc will deliver more than 50,000 visualized consults, the most in the industry. We provide an illustration of the sources of Teladoc’s consults in Exhibit 4. According to management, roughly 60% of consults come via call center request, whereas 40% of consults come via web/mobile. In terms of the

(Millions) 2013 2014 2015E 2016E 2017E

Members 6.200 8.100 12.636 17.690 22.998

Y/Y Growth 30.6% 56.0% 40.0% 30.0%

Visits 0.127107 0.298833 0.550445 0.871298 1.189158

Y/Y Growth 135.1% 84.2% 58.3% 36.5%

Visit TAM 417.0 417.0 417.0 417.0 417.0

Visit Penetration 0.0% 0.1% 0.1% 0.2% 0.3%

Visit TAM (Outpatient and ER Only) 76.0 76.0 76.0 76.0 76.0

Visit Penetration 0.2% 0.4% 0.7% 1.1% 1.6%

Utilization 2.1% 3.7% 4.4% 4.9% 5.2%

Unique Visits 0.093461 0.219730 0.404739 0.640660 0.874381

Unique Member Utilization 1.5% 2.7% 3.2% 3.6% 3.8%

Sinusitis Bronchitis Dermatology Grief Counseling

Urinary Tract Infection Allergies Anxiety Marriage Counseling

Pink Eye Influenza Smoking Cessation Sexual Health

Upper Respiratory Infection Yeast Infection

Nasal Congestion Cough and Cold

Growth AreasTop Indications

Page 9


40% web/mobile consults, roughly 70% are telephonc versus 30% visualized. While we recognize Teladoc’s strong performance in visualized consults, we would expect this number to be much larger. The majority of Medicaid reimbursement revolves around visualized consults rather than telephonic. Furthermore, the majority of competitors, Doctor on Demand and American Well, seem to be primarily focused on the visualized consult market.

Exhibit 4: Telephonic Delivery Needs to Evolve Toward Video Delivery


While the majority of Teladoc’s monetization comes via the business-to-business-to-consumer model, the company does offer a hybrid consumer offering. We illustrate the costs of utilizing Teladoc if the telemedicine platform is not a benefit within a corporate wellness plan or health insurance plan. Consumers in the State of New York can sign up for Teladoc via a partnership with the Beth Israel Medical Center, a member of Mount Sinai Health System. We illustrate the pricing associated with the hybrid offering in Exhibit 5. While we note the per year membership pricing seems quite attractive, adding a per consult fee on top of the membership seems to negate the attractiveness of the offering, in our view. We believe the Beth Israel pricing illustrates the problems associated with utilizing both a PMPM or subscription model plus a per visit pricing model. In our view, telemedicine providers need to pick one model or the other rather than attempting to monetize both ways.

Exhibit 5: Teladoc’s Consumer Pricing through Beth Israel New York


While we note that Teladoc management points to strong member engagement, we believe the company’s engagement metrics have significant room for improvement. Our issues with member engagement are two-fold: (1) we believe pricing is too expensive to drive robust utilization among consumers, (2) evidence suggests that the majority of consumers are still a long way from adopting telemedicine, and (3) utilization rates seem quite low even among key Teladoc clients.

60%40%

Call Center Web/Mobile

30%

70%

Visualized Telephonic

Analyzing the Web/Mobile Split

Per Consult Individual Acct. Family Acct.

Model Per Visit Per Visit + Membership Per Visit + Membership

Subscription Fees None $29.99 Per Year $49.99 Per Year

Consult Fees $49.00 $39.00 $39.00

Assume 3 Visits $147.00 $117.00 $117.00

Plus Membership $0 $29.99 $49.99

Total Consumer Cost $147.00 $146.99 $166.99

Page 10


Our view on Teladoc holds that member engagement should be higher, and that we would prefer to see greater overall visit revenues. Ultimately, we believe there are certain issues with the business model that may hinder overall utilization of the service. First, the lack of a direct-to-consumer offering, in our view, limits the total addressable opportunity. Second, we believe the combined model of PMPM plus a per visit fee may be too expensive. Our pricing concerns revolve around the company’s per visit fee and the way a common consumer likely thinks about visiting the doctor. We believe most consumers focus on the upfront cost of visiting the doctor i.e., a copay, and likely are less concerned with the expenses incurred after a visit occurs. After all, the common U.S. healthcare consumer likely has little ability to even estimate the post-visit costs of seeing a physician. In our view, Teladoc, and telemedicine services in general, need to price a visit aggressively in order to drive robust utilization and adoption. In Exhibit 6, we provide a comparison of the copays for an emergency room visit, urgent care visit, and primary care visit associated with an Anthem BlueCross BlueShield insurance plan. Under this insurance plan, which covers an individual and two dependents, an ER visit copay is $250, an urgent care copay is $75, and a PCP copay is $30. We do not have any specific knowledge as to whether or not Teledoc comes as a covered benefit under an Anthem plan. Most importantly, we fall into the consumers that have absolutely no idea whether or not Teladoc comes as a covered benefit as part of our health plan. On the right side of Exhibit 6, we illustrate the cost of a TDOC visit to a consumer based on its quasi-direct-to-consumer model on a monthly basis and annual basis. Investors should note that TDOC offers a discount to these consumers when opting for an annual subscription versus a monthly subscription. We note that a single visit via Teladoc, should the consumer be required to pay, costs anywhere from $49 (no membership) to $99 (family account membership). In our view, the comparison suggests that when considering where to go for care, there seems to be little incentive to utilize telemedicine in the primary care setting. Additionally, while the costs are likely less for an ER visit, we believe substituting telemedicine for an ER visit may be a difficult sell in certain instances. At the recent Stifel Healthcare conference, Teladoc management spoke about how 25% of pediatric emergency room visits could easily be served via telemedicine. The problem is that the barrier associated with a parent wanting the peace of mind of seeing and interacting with a person regarding their child’s health will likely trump the costs savings associated with telemedicine, at least near-term. We believe this illustrates the steep adoption curve telemedicine services face before they can be considered mainstream services.

Exhibit 6: Pricing Comparison Teladoc versus Selected Anthem Copays

Source: Company documents, and Stifel estimates. Notes: 1.) TDOC’s Beth Israel pricing allows consumers to opt for a monthly subscription or annual subscription. 2.) The TDOC subscription term is one full year regardless of a monthly or annual term and provides no refund for early termination. Therefore, we believe a single visit must include the per visit fee plus the associated subscription costs. 3.) The terms for a monthly individual subscription are $39 per consult plus a monthly fee of $2.99 per month over 12 months. 4.) The terms for a monthly family subscription are $39 per consult plus a monthly fee of $4.99 per month over a 12-month period. 5.) The terms for an annual individual subscription are $39 per consult plus an annual fee of $29.99 (a $5.89 discount). 6.) The terms for an annual family subscription are $39 per consult plus an annual fee of $49.99 (a $9.89 discount).

$250

$75

$30

$49

$75

$99

$69

$89

ER Visit Urgent CareVisit

PCP Visit TDOC (PerVisit)

TDOC(Individual,

Per Month)

TDOC(Family, Per

Month)

TDOC(Individual,

Annual)

TDOC(Family,

Annual)

While Teladoc may save costs for the employer or health plan, we believe pricing may hold back more robust utilization. A

lack of benefit awareness, and muddled reimbursement

landscape do not help.

Page 11


We illustrate the usage trends associated with Teladoc’s telemedicine platform stemming from a study of CALPERS a Teladoc client in Exhibit 7. In February 2014, Health Affairs published a study of Teladoc usage based on the CalPERS client base. The study analyzed 306,027 eligible Teladoc enrollees, of which 2,718 actually utilized the Teladoc service during the study period. Those who used the service averaged roughly 1.36 visits during the study period. We highlight the key data points from the study regarding Teladoc usage metrics in Exhibit 7, which we believe are instructive for investors.

Exhibit 7: CALPERS Utilization Trends Associated with Teladoc

Source: Uscher-Pines, Lori and Ateev Mahrotra, Analysis of Teladoc Use Seems To Indicate Expanded Access to Care For Patients Without Prior Connection to a Provider, Health Affairs, February 2014

In Exhibit 8, we illustrate the most commonly treated indications on the Teladoc platform associated with the Health Affairs CalPERS study. We note that the top nine indications represented nearly 80% of all Teladoc treatments. In our view, Teladoc certainly faces an opportunity to expand the treated indications served by its platform, but also suggests the total addressable market in terms of visits is considerably less than the 417 million visits discussed by management.

Exhibit 8: Most Commonly Treated Indications Among CalPERS Teladoc Users

Source: Uscher-Pines, Lori and Ateev Mahrotra, Analysis of Teladoc Use Seems To Indicate Expanded Access to Care For Patients Without Prior Connection to a Provider, Health Affairs, February 2014

We illustrate telemedicine utilization rates based on a study by Dale Yamamoto of Red Quill Consulting, which studied the feasibility of telemedicine replacing in-person services in Exhibit 9. Based on roughly 100,000 Telemedicine visits, the Yamamoto study found that roughly 1% to 2% of eligible patient populations actually utilized telemedicine services. Additionally, 80% of those patients using telemedicine only utilized such services once. The average number of visits per patient according to the Yamamoto study is 1.3 visits per year, which is similar to the 1.36 factor established in the CalPERS study. We believe the Yamamoto study certainly illustrates the promise and relative immaturity of the telemedicine market. At the same time, we believe the overall weak utilization rates illustrated by the Yamamoto study show that telemedicine platforms, including Teladoc, need to improve their value propositions or do more to drive robust patient engagement.

Eligible Enrollees 306,027

Teladoc Users 2,718

Teladoc Visits 3,701

Utilization 0.9%

Visit Factor 1.36

Single Visit 2,066 76%

Three+ Visits 200 7%

Health Affairs CalPERS Study Trends

Condition Number Percentage Condition Number Percentage

Acute Respiratory Illness 1151 31.1% Influenza and General Viral Illness 172 4.7%

Urinary Tract Infections and Symptoms 439 11.9% General Advice, Counseling, Refills 169 4.6%

Skin Problems 335 9.1% Eye Problems 138 3.7%

Abdominal Pain, Vomiting, Diarrhea 231 6.2% Ear Infections (Internal and External) 137 3.7%

Back and Joint Problems 190 5.1% All Others 739 20.0%

Page 12


Exhibit 9: Telemedicine Utilization Trends

Source: Yamamoto, Dale, Assessment of the Feasibility and Cost of Replacing In-Person Care with Acute Care Telehealth Services, Red Quill Consulting, Inc., December 2014

In Exhibit 10, we provide an illustration of several consumer markets for primary care according to PwC’s Health Research Institute. Based on the PwC data, the majority of office visits are associated with the least healthy population. We note that the PwC data suggests the overwhelming majority of care utilization falls into physician office visits with limited usage of the emergency department and ancillary (outpatient) services. We believe the PwC data suggests that the real opportunity for telemedicine revolves around helping cut down on office visits for the chronically ill. Furthermore, we believe the PwC data suggests that increasing the 1.36 visit per person rate for telemedicine usage may be difficult to achieve. Lastly, the data suggests to us that the opportunity associated with replacing in-person emergency room visits and outpatient visits with telemedicine may be somewhat limited in the near-term, as well.

Exhibit 10: An Analysis of the U.S. Population by Care Type

Source: Pwc, Medical Expenditure Panel Survey, 2012, and HRI Analysis

A major aspect of the Teladoc story revolves around the cost savings associated with telemedicine services versus in-person visits. In Exhibit 11, we illustrate the average cost savings across several types of in-person visits versus a telemedicine visit via Teladoc, based on a Teladoc analysis. When only the per visit fees are considered, the cost of telemedicine is quite attractive versus in-person visit channels. The approximate savings when considering visit fees only between Teladoc and in-person channels ranges from about $91 for primary care to a high of roughly $1,437 for emergency room visits. While we recognize the analysis below illustrates a cost savings, we believe one must consider the per member per month fees when analyzing actual cost savings. In our view, the fact that clients such as Highmark and Home Depot are beginning to offer telemedicine choice suggests that even clients do not necessarily view the analysis in Exhibit 11 as the true cost savings.

Number of Visits Per Year Percent

1 81%

2 13%

3 4%

4 1%

5+ 1%

Complex Healthy Healthy

Frail Chronic Chronic Mental Healthy Adult Adult

Demographics Elderly Disease Disease Illness Families Skeptics Enthusiasts

Lives (millions) 5.8 24.9 176.3 9.4 62 12.1 23.1

Lives Mix 1.8% 7.9% 56.2% 3.0% 19.8% 3.9% 7.4%

Total Lives (millions) 313.6

Care Utilization by Category

Total 15.7 11.9 6.9 5.7 1.6 0.9 1.4

Discharges 0.4 0.2 0.1 0.0 0.0 0.0 0.0

Ancillary Visits 0.8 1.1 0.4 0.2 0.1 0.0 0.1

ED Visits 0.5 0.4 0.2 0.1 0.1 0.1 0.1

Office Visits 13.9 10.2 6.2 5.3 1.4 0.7 1.2

Page 13


Exhibit 11: Teladoc ROI Claims – Visit Fee Only


In Exhibit 12, we provide an analysis of cost savings of using Teladoc compared to in-person visits. In this analysis, we include the per visit fees and per member per month fees associated with the Teladoc model in order to determine cost savings. We note that including the PMPM fees significantly changes the actual cost savings across the in-person verticals. Including the PMPM fees in the cost savings calculation actually makes a Teladoc visit more expensive in the primary care vertical and the associated savings across the specialist and urgent care channels falls from a range of $123 to $156 to a range of $17 to $50.

Exhibit 12: Teladoc ROI Claims – Visit plus Per Member Per Month Fees Only


We note that management identifies several growth areas which range from expanding footprint / penetration to the expansion of products and services. In our view, the most valuable growth revolves around increasing the member base footprint, but more so expanding the utilization of Teladoc’s services among its installed base. Management seems focused on expanding into new care categories, especially behavioral health. We believe

Action

ER Visit $1,477

Teladoc $40

Urgent Care $163

Teladoc $40

Specialist $196

Teladoc $40

PCP Visit $131

Teladoc $40

Average Cost

$1,437 Savings

$123 Savings

$156 Savings

$91 Savings

Action

ER Visit $1,477

Teladoc $146

Urgent Care $163

Teladoc $146

Specialist $196

Teladoc $146

PCP Visit $131

Teladoc $146

Average Cost

$1,331 Savings

~$17 Savings

~$50 Savings

~$15 More Expensive

Page 14


these efforts are attractive, but we are slightly skeptical of the company’s myriad growth plans given the relative under-utilization of the company’s telemedicine services among its consumer base.

Exhibit 13: Outlining Teladoc’s Growth Strategies


Industry Overview

We note that telehealth / telemedicine represents a nascent industry that faces a significant growth opportunity. The promise of telehealth / telemedicine services holds that technology can create a more efficient healthcare delivery system at a lower cost. We believe the promise of lower costs and greater efficiencies seems to fluctuate depending on business model employed and constituents served. We believe the fundamental presupposition of telehealth / telemedicine revolves around removing low acuity physician / healthcare provider touch points from the traditional in-person consultation system. Over time the success or failure of telehealth / telemedicine will revolve around visit volumes and system utilization rates. Furthermore, the industry must evolve from simply removing low-acuity visits from the in-person system to somehow driving greater efficiency in terms of physician visitations with more chronically ill patients, too. The Existential Question Facing Telemedicine. We believe that telemedicine faces an existential question around what the appropriate business model for telemedicine looks like in the future. The first mover of telemedicine, Teladoc, supports a model that consists of a per member per month (PMPM) fee and a per visit fee. The company believes its business model facilitates significant utilization and member engagement. Competitors are attacking Teladoc’s PMPM model, and many competitors now believe the future will revolve around business models solely focused on per visit fees. We believe the answer likely falls somewhere in the middle, but we do believe both business models may be priced too high in order to drive robust consumer adoption of telemedicine. The Telemedicine Utilization Dilemma. In our view, telemedicine faces a utilization dilemma given anemic utilization rates across the industry. We note that Teladoc claims a 6.6% utilization rate excluding its largest customer. In some instances, Teladoc claims clients have a 40% to 60% utilization rate. We believe the true utilization rate for Teladoc and the industry falls closer to 3% to 4%.

Expand Footprint / Penetration

Expand Specialties

Expand Scope of Products

& Services

Expand Clinical Use Cases

New AccountsNew Channels

Existing Health Plans

Increase Utilization

Direct-to-Consumer

Behavioral Health

Dermatology

2nd Opinion / Specialty Advice

STI / HIV Testing

Diabetes

Health Kiosk

Mobile Apps / Hubs

Biometric Devices

At-Home Tests

Home Care

Post Discharge

Wellness / Screening

Chronic Care

Teladoc's Growth Strategies

Page 15


Teladoc spends ample time framing the company’s total addressable market in terms of visits. The company believes its total addressable visit market is roughly 417 million annual physician visits. With Teladoc on track to deliver between 540,000 and 550,000 visits in FY15, we wonder why are visits, and therefore, utilization rates not higher. We believe the per visit fee may represent the impediment to widespread consumer adoption of telemedicine. In our view, current business models are priced to make money (clearly nothing wrong with this) rather than drive adoption and stickiness of the service. In our view, telemedicine adoption would likely be more robust were telemedicine companies willing to price visits aggressively say at a rate near or below the copay of a primary care physician (PCP) visit. In our view, the winning telemedicine business model and company will be the one most clearly focused on driving utilization first and monetization second. Our concern for Teladoc is that the PMPM model signals that the company may be focused on monetization first and customer adoption second. We believe the recent trend of clients and others opening up their telemedicine opportunities to all business models illustrate our concerns. We worry that Teladoc’s current business model may be more appropriate for a mature telemedicine market. Lastly, we believe the burden of proof around PMPM falls squarely on Teladoc, as they seem to be the only vendor employing the PMPM model. Competitors believe the right model foregoes PMPM fees. Clients are now even questioning the PMPM value proposition as clients move from being exclusive with Teladoc to providing several telemedicine service options. Telehealth Reimbursement. A lack of clarity and universal reimbursement for telehealth provides an impediment to robust adoption among both physicians and consumers. Physicians are reluctant to utilize these services as they are unsure whether or not they will be compensated. Consumers are reluctant to utilize these services because they (1) do not know if telemedicine is a plan benefit, and (2) lack of clear reimbursement means providers and others may not push for utilization to telemedicine. We attempt to provide an overview of the nuances of telehealth / telemedicine reimbursement, below. We invite investors to check out Chiron Health’s website, as well as the Center for Connected Health Policy to understand the topic in greater detail; telemedicine reimbursement seems to be incredibly complex. Currently, 26 states have laws mandating private insurance coverage of telemedicine, and another 10 states have proposed or pending parity laws. Medicare remains the most restrictive in terms of telemedicine reimbursement. Reimbursement under Medicare represents a function of modality. Currently, Medicare only reimburses for telemedicine services provided via video conferencing, and does not reimburse for store-and-forward, remote patient monitoring, or mHealth. The current exception under Medicare revolves around Chronic Care Management (CCM). Medicare will reimburse providers $42 per month for care coordination of chronically ill Medicare patients with two or more chronic medical conditions under CPT code 99490. We note that both Allscripts and athenahealth are focused on the CCM market via relationships with private telemedicine providers CareSync and Chiron Health. Medicaid does reimburse for telemedicine, but the Medicaid telemedicine reimbursement landscape consists of 50 unique policies. Currently, 46 state Medicaid programs reimburse for live video, the exceptions being Iowa, Massachusetts, New Hampshire, and Rhode Island. Additionally, states can restrict reimbursement based on four factors: medical specialty type, type of service provided, location of the patient, and location of the provider. Roughly 14 state Medicaid programs offer reimbursement for remote patient monitoring. Three state Medicaid programs reimburse for all three. Roughly 26 states will reimburse either a transmission, facility fee, or both. Nine state Medicaid programs offer some form of reimbursement for store-and-forward.

Telehealth versus Telemedicine. Investors should note the distinction between telehealth and telemedicine. The industry typically uses telehealth as the all-encompassing term, which includes everything from a video-based physician consult to monitoring to mHealth. The term telemedicine represents the more narrow term, which typically describes a video-based or phone-based consultation between a physician and patient. We point investors to the American Hospital Association and American Telemedicine Association for more details on the definition of these terms. Three Core Modalities of Telehealth. The telehealth industry defines three core modalities. First, the real-time modality revolves around live provider and patient communication via video-conferencing. The store and forward modality involves capturing and storing images and clinical data, among other things, securely on a

Page 16


device for physician review at a later time. Lastly, remote monitoring describes a system where data from sensors and monitors are sent to a central monitoring center that allows a caregiver to monitor a patient remotely.

The Macro Forces Driving Interest in Telehealth / Telemedicine

We see several macro factors driving the U.S. health system toward telehealth / telemedicine. The hope of the U.S. healthcare complex holds that telehealth / telemedicine can help solve the physician access crisis, looming physician shortages, and help lower the burden of healthcare costs. While these macro factors represent significant drivers of interest in telehealth / telemedicine, we believe current industry players must evolve business models in order to fully solve these problems. The Physician Access Crisis. A major problem facing the U.S. healthcare complex revolves around physician access. In 2014, Merritt Hawkins conducted a physician wait time survey, which found the average wait to see a physician was roughly 18.5 days. The survey found the average wait to be 45.4 days in Boston at the high end, and the survey found the average wait to be 10.2 days in Dallas at the low end. Clearly, patients are not always able to wait so long to see a physician. We believe telemedicine provides a solution that can help alleviate the physician access crisis. Telemedicine can alleviate practice burden by taking on the lowest acuity visits, which frees up physicians to serve higher acuity problems. The hope is that telemedicine can help alleviate wait times for physicians in certain instances. We note that according to Merritt Hawkins 2015 physician access scores that Massachusetts offers the highest physician access in the U.S., whereas Texas is ranked 47

th in terms of physician access.

Physician Supply Constraints. Another problem facing the U.S. healthcare system revolves around the looming physician shortage. In March 2015, IHS, Inc. conducted a study around physician supply and demand trends on behalf of the Association of American Medical Colleges. The study found that physician demand continues to outstrip supply, which projects a possible physician shortfall between 46,100 and 90,400 by 2025. We believe telemedicine will likely prove to be an important resource in alleviating possible physician shortages, as telemedicine may allow practicing physicians to reallocate downtime to see additional patients.

Exhibit 14: Projecting Possible Physician Shortages in the U.S. 2013 to 2025E

Source: IHS, Inc., The Complexities of Physician Supply and Demand: Projections from 2013 to 2025, March 2015, and Stifel formatting

11,000

30,800

65,500

90,400

11,000

21,800

35,100

46,100

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

2013 2014 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Ph

ys

icia

ns

Projected Physician Shortage Scenarios

75th Percentile 25th Percentile

Page 17


The U.S. Healthcare Cost Burden. We believe the single largest problem facing the U.S. healthcare complex revolves around the significant cost burden the U.S. currently faces. Currently, the U.S. generates nearly $2.7 trillion in healthcare expenditures, which represents roughly 17.1% of national GDP. We note that many Organisation for Economic Co-operation and Development (OECD) nations exhibit lower national health expenditures as a percentage of national GDP (10% to 11% range). While we recognize that U.S. healthcare expenditures continue to grow to some extend due to the changing demographics of the population (baby boomer retirements), we do believe U.S. national health expenditures are quite high. In Exhibit 15, we illustrate national health expenditures as a percent of GDP for the U.S. and select OECD nations for the 1980 to 2013 period. In the U.S., national health expenditures (NHE) as a percentage of GDP continue to grow, but expenses as a percent of national GDP seems to far outpace many OECD countries. Based on the data below, national health expenditures as a percentage of GDP increased roughly 4.7% between 1980 and 2013 on average for the non-U.S. countries shown below. Between 1980 and 2013, national health expenditures as a percentage of GDP in the U.S. increased roughly 8.4%. In 1980, U.S. national health expenditures as a percentage of GDP were roughly 8.7%. Had NHEs grown at the non-U.S. average of 4.7%, we believe U.S. NHEs as a percent of GDP in 2013 would be closer to 13.4%. We believe the backdrop of the Affordable Care Act (ACA) and the Centers for Medicare and Medicaid Services (CMS) reimbursement reform provides a deflationary spending environment for U.S. healthcare. We believe the U.S. healthcare complex will continue to seek out new tools and services that can help reduce the NHE cost burden over time. In our view, telemedicine represents one of these possible tools.

Exhibit 15: National Health Expenditures Remains a Costly Problem for the U.S.

Source: The Commonwealth Fund, U.S. Health Care from a Global Perspective, October 8, 2015, and Stifel formatting

Analyzing Consumer Interest in Telehealth / Telemedicine

We believe Telehealth / Telemedicine represent an important tool to drive greater efficiency and lower costs of care over the next several years and decades. In our view, Telehealth / Telemedicine remain a nascent industry as consumers and caregivers alike are just beginning to adopt Telehealth / Telemedicine services. Based on our research, both consumer and physician interest in such services seem to be high. Nevertheless, adoption continues to face a significant uphill battle. Below, we provide survey data that illustrates current consumer and physician adoption and interest trends associated with Telehealth / Telemedicine.

0

2

4

6

8

10

12

14

16

18

NH

E a

s %

of

Na

tio

na

l G

DP

U.S. National Health Expenditures Compared to OECD Countries

US (17.1%)

FR (11.6%)

SWE (11.5%)

GER (11.2%)

NETH (11.1%)

SWIZ (11.1%)

DEN (11.1%)

NZ (11.0%)

CAN (10.7%)

JAP (10.2%)

NOR (9.4%)

AUS (9.4%)*

UK (8.8%)

Non-US Avg. (10.7%)

Page 18


In Exhibit 16, we illustrate patient interest in telemedicine based on a survey conducted by Software Advice in January 2015. The survey queried roughly 519 consumers of which 381 (roughly 73%) were non-telemedicine users and 138 (roughly 27%) were telemedicine users. While the survey exhibited a significant rate of non-telemedicine usage, roughly 76% of respondents were significantly interested in utilizing telemedicine services. Based on the survey, roughly 24% (6% not interested plus 18% minimally interested) were unlikely to utilize telemedicine services.

Exhibit 16: Patient Interest in Telemedicine

Source: Irwin, Kathleen, “Patient Interest in Adopting Telemedicine,” Software Advice, January 27, 2015, and Stifel formatting

We illustrate patient preferences for telemedicine compared to the emergency room (ER) based on the Software Advice survey in Exhibit 17. Roughly 71% of respondents preferred telemedicine to the ER, whereas roughly 16% preferred the ER, while 4% were neutral. Clearly, consumer interest in telemedicine seems high, yet utilization of such services remain quite low.

Exhibit 17: Patient Telemedicine Preferences Compared to Emergency Room (ER)


Extremely Interested

15%

Very Interested24%

Moderately Interested

37%

Minimally Interested18%

Not at all Interested6%

Patient Interest in Telemedicine

Strongly Prefer Telemedicine

28%

Somewhat Prefer Telemedicine

43%Neutral

12%

Somewhat Prefer ER

12%

Strongly Prefer ER4%

Patient Preferences for Telemedicine Vs. ER

Page 19


In Exhibit 18, we illustrate what consumers believe to be the perceived benefits of telemedicine according to the Software Advice survey. We believe the fact that only 4% of respondents cited cost effectiveness as a perceived benefit may help to explain the weak utilization rates of telemedicine. For the most part, consumers like telemedicine for not having to travel, staying in the comfort of home, as well as the high quality of care. In our view, for telemedicine to become a much stickier and mainstream phenomenon, consumers need to believe telemedicine is more cost effective than other channels, consumers need to believe telemedicine is more efficient, and finally consumers need to believe telemedicine is easier than traditional channels. Until these perceived benefits are higher, we believe telemedicine will face significant impediments to utilization growth.

Exhibit 18: Perceived Benefits of Telemedicine


Another key problem that seems to be driving a lack of telemedicine utilization revolves around insurance coverage of telemedicine solutions. Based on the Software Advice survey, only 20% of survey respondents were aware that their insurance covered telemedicine services. Roughly 24% of survey respondents were aware that their insurance did not cover telemedicine services. The 56% of consumers who were unsure of telemedicine coverage illustrates the limited awareness and utilization of telemedicine among consumers today. We believe Teladoc argues that it provides engagement services via its PMPM cost structure. In our view, the greatest way to drive awareness and engagement revolves around providing per visit fees that are more competitive than a PCP copay.

Exhibit 19: Telemedicine Insurance Coverage


4%

8%

9%

10%

11%

20%

21%

21%

Cost Effective

Avoid Waiting Room

Easy to Use

Shorter Wait Time

Quick Access to Care

Comfort of Home

High Quality of Care

Do Not Have to Travel

Perceived Benefits of Telemedicine

Not Sure56%

Does Not Cover Telemedicine

24%

Does Cover Telemedicine

20%

Patient Awareness of Telehealth Coverage

Page 20


In Exhibit 20, we illustrate consumer / patient willingness to consider a telemedicine video visit based on a survey from American Well. The American Well survey queried 2,019 consumers of which 64% were willing to consider a video visit. Clearly, consumers are interested in utilizing telemedicine solutions. However, roughly 36% of respondents expressed no interest in a telemedicine video visit, which was 12% higher than the 24% of respondents who were not interested in telemedicine according to the Software Advice survey.

Exhibit 20: Assessing Patient Willingness to Consider a Video Visit

Source: American Well Telehealth Index: 2015 Consumer Survey, January 2015, and Stifel formatting

We illustrate the different options a patient may consider for care in the middle-of-the-night based on the American Well survey. The relative majority, roughly 44%, were most likely to visit the ER. At the same time, roughly 43% of respondents were willing to consider utilizing a digital channel to resolve their issue in the middle-of-the-night. Roughly 21% of respondents were open to a video visit, roughly 17% would turn to a 24-hour nurse line, and roughly 5% would consult an online symptom checker. These results clearly show there is a role for telemedicine services for off-hours care.

Exhibit 21: Where Do Consumers Turn for Care in the Middle of the Night?


Yes64%

No36%

Patient Willingness to Have a Video Visit

ER44%

Video Visits21%

24 Hour Nurse Line17%

Online Symptom Checker

5%

Ambulance4%

Other9%

Options a Patient Might Consider in the Middle of the Night

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In Exhibit 22, we illustrate consumer preferences around the affordability of telemedicine services based on the American Well survey. The majority, roughly 62%, felt that telemedicine services need to cost less than an in-person physician visit, whereas 27% felt telemedicine should cost the same or more than an in-person visit. Additionally, visit-only telehealth models seemingly cost less than traditional in-person visits. In our view, such comparisons are a bit misleading for two reasons. In the specific case of Teladoc, the company utilizes a PMPM fee, which when included in the analysis suggests telemedicine could be more expensive than some in-person visits. Secondly, the average cost of a telemedicine visit is roughly $49, which seems significantly higher than traditional PCP copays and some urgent care copays. We believe that while telemedicine may save money for employers and health plans, current visit fees may cause telemedicine to be a non-starter for consumers. In our view, telemedicine services need to be priced aggressively compared to their associated consumer copays in order to drive robust consumer adoption. We see this as a primary reason for anemic utilization rates industry wide.

Exhibit 22: Assessing the Affordability of Telemedicine Services


In Exhibit 23 to Exhibit 26, we illustrate physician adoption and utilization trends associated with telemedicine based on a Robert Graham Center report titled Family Physicians and Telehealth: Findings from a National Survey, published October 30, 2015. The survey analyzed 1,557 responses of which only 15% (roughly 225 family physicians) reported utilizing telemedicine services. We illustrate the demographics of respondents reporting usage of telemedicine services in Exhibit 23. The most likely users of telemedicine were either isolated rural (roughly 29%) or small rural (roughly 25%), whereas urban counterparts were unlikely to use telemedicine services

Exhibit 23: Which Providers Are Likely to Utilize Telemedicine?

Source: Robert Graham Center, Family Physicians and Telehealth Findings from a National Survey, October 30, 2015, and Stifel formatting

Not Sure11%

About the Same22%

More5%

Less62%

How Much Should Online Cost vs. In Person?

$750

$140

$95

$49

Emergency Room Urgent Care PCP Telehealth

Cost of Care

Our primary concern is that the comparison fails to consider PMPM fees in the case of Teladoc.

While Telehealth appears least expensive, we believe Telehealth may not be when compared to

patient copays.

11%

22%

25%

29%

Urban (n=1082)

Large Rural (n=180)

Small Rural (n=127)

Isolated Rural (n=68)

Distribution of Analysis Sample by Practice Location

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In Exhibit 24, we illustrate the likelihood of a family physician utilizing telemedicine services in the presence of other provider types at the practice. We believe the report found that about 20% to 25% of family physicians would utilize telemedicine in the presence of other providers at the practice. We believe these relatively low percentages suggest that family physicians working in small practices may be more likely to utilize telemedicine services.

Exhibit 24: Other Physician Types May Drive Telemedicine Adoption


The report also found that physicians working in integrated health systems were the most likely to utilize telemedicine services, see Exhibit 25. We believe the greater likelihood of usage at integrated health systems versus privately owned practices may stem from access to resources.

Exhibit 25: Telemedicine Usage Based on Type of Practice


16%

17%

19%

19%

23%

25%

25%

26%

Other (n=144)

Nurse Practitioner / Physician Assistant (n=1022)

Specialist Physician (n=421)

Other PCP (pediatrics, internal medicine) (n=538)

Behavioral Specialist (n=404)

Pharmacist (n=336)

Community Health Worker (n=124)

Physical Therapist (PT/OT) (n=307)

Percentage of Family Physicians Using Telehealth by the Presence of Other Clinicians at the Primary Practice Location

9%

14%

25%

26%

Privately Owned (n=573)

Hospital or Health System Owned (n=663)

Integrated Health System (n=75)

Other (n=227)

Percent of Family Physicians Using Telehealth by Practice Ownership

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In Exhibit 26, we illustrate the perceived barriers to telemedicine adoption among family physicians. The most prevalent perceived problem seems to revolve around reimbursement of telemedicine by insurers.

Exhibit 26: What Keeps Physicians from Adopting Telemedicine


22%

27%

34%

41%

43%

20%

43%

47%

56%

55%

Other (n=325)

Liability Issues (n=595)

Cost of Equipment (n=704)

Lack of Training (n=828)

Reimbursement By Insurers (n=829)

Differences in Perceived Barriers to Using and Not Using Telehealth

Non-Users

Users

Page 24


Teladoc’s Total Addressable Market

A major component of high growth revenue stories revolves around the characteristics of the associated total addressable market opportunity. We believe the majority of investors and Teladoc believe that the company and telemedicine in general faces a vast and significant total addressable market opportunity. The problem we see revolves around the aspirational total addressable market and what we believe may represent the actual total addressable market. We believe that our analysis of Teladoc’s total addressable market is quite informative to the debate around the sustainability of the PMPM monetization model, and whether Teladoc’s dual monetization model (PMPM plus per visit fees) will be sustainable long term. The bottom line is that we believe Teladoc’s current monetization model unnecessarily complicates things and, in our view, the company would be better served focusing on driving massive utilization and adoption via compelling pricing through the PMPM model. Ultimately, we see the winner in the current era of telemedicine as the vendor most acutely focused on driving adoption via aggressive pricing, which presupposes a very simple monetization structure. In Exhibit 27, we provide a summary of our Teladoc total addressable market analysis with what we believe to be the near-term addressable market opportunity highlighted in yellow. Our analysis looks at several scenarios, which span what we believe to be the aspirational total addressable market opportunity to what we believe represents a more conservative look at the total addressable market opportunity. We note that our first four listed total addressable market scenarios are based solely on a per visit fee structure, and exclude all PMPM fees. In our highlighted scenario, we look at the insurable lives opportunity across several insurance segments in order to develop a conservative total addressable market opportunity, which encompasses not only per visit fees, but also PMPM fees. We explain and illustrate each of these scenarios, below.

Exhibit 27: An Overview of Teladoc’s Total Addressable Market Opportunity

Source: Company documents, CDC, and Stifel estimates

We attempt to illustrate what the total addressable market opportunity associated with what we believe to be the ideal monetization model for telemedicine in Exhibit 28. Our ideal telemedicine monetization model consists of a PMPM subscription fee combined with unlimited physician consults and no per visit fees. We assume a low PMPM starting point of $2.99, which coincides with Teladoc’s Beth Israel New York pricing, and equates to $35.88 annually, which is about one-quarter that of Netflix. We note that in a PMPM only model that TDOC may look to a PMPM fee higher than the $2.99 we use in our illustration. The purpose of the aggressive PMPM subscription fee is to drive robust utilization in a similar fashion to Netflix. Providing a subscription fee model at a price point where a consumer forgets or does not care about the subscription cost creates a sticky user base. As the service gains traction, the company can then raise its PMPM fees based on new or additional services, as well as raise fees based on underlying performance and value. Once the product goes mainstream, the service evolves from an elastic price demand curve to an inelastic price demand curve. Ultimately, telemedicine remains a nascent industry, which in our view suggests vendors should be cautious about over-monetizing their telemedicine services, given a lack of mainstream adoption. In the current era of telemedicine, we believe the vendor most acutely focused on driving adoption through attractive pricing will be the winner.

TAM Analysis Summary Low Mid High

Baseline (Aspirational) $15,940.6 $17,984.3 $20,027.9

Stifel Adjusted (Aspirational) $10,669.3 $12,037.2 $13,405.0

Baseline (Conservative, ex Ambulatory Visits) $2,967.6 $2,967.6 $2,967.6

Baseline (Conservative, ex Ambulatory Visits, 30% Say No) $2,077.3 $2,343.7 $2,610.0

PMPM (Lives) + Visit (Lives) $2,214.6 $3,301.5 $4,388.4

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Exhibit 28: A Look at Stifel’s Ideal Telemedicine Monetization Model

Source: Company documents, eHealth, and Stifel estimates

In Exhibit 29, we illustrate what we believe to be Teladoc’s total addressable market based on the per fee visit monetization structure. According to company documents, Teladoc believes the total addressable market in terms of visits is roughly 417 million, based on an analysis of CDC visit data. Our analysis parses out the three component verticals of Teladoc’s visit TAM, which includes ambulatory visits, outpatient visits, and emergency room visits. Visits across these verticals total roughly 1,008 million ambulatory visits, 101 million outpatient visits, and 130 million emergency room visits. Based on Teladoc’s analysis of the CDC visit data, the company believes roughly 33% of all visits are addressable by Teladoc’s telemedicine platform. We then calculate two total addressable market scenarios in aggregate and by component using a high per visit fee of $49 and a low per visit fee of $39. Our analysis suggests that Teladoc’s total aggregate visit opportunity is roughly 409 million. Applying our $39 and $49 per visit fee structure, we achieve an estimated total addressable market of between $15.0 billion and $20.0 billion. We note that the only limiting factor associated with Teladoc’s analysis revolves around the estimated number of treatable visits by Teladoc.

Exhibit 29: Calculating TDOC’s Total Addressable Market

Source: Company documents, CDC, and Stifel formatting

We illustrate what we believe are the treatable and untreatable categories of CDC physician visits based on Teladoc’s analysis. In our view, the addressable indication opportunity for Teladoc revolves around general and family, dermatology, cardiovascular, psychiatry, and urology, which equates to roughly 32.6% of total CDC physician visits. The majority of untreatable visits seem to revolve around more complex indications (neurology, oncology, ophthalmology) or areas where preference likely defers to an in-person visit (Pediatrics and OB/GYN). The total unaddressable visit opportunity equates to roughly 67.5% of all CDC visits.

Stifel's Ideal Employer Employer Individual &

Telemedicine Monetization Model Large & Mid Small Uninsured Family Medicare Medicaid Government

Lives (millions) 80.0 44.0 42.0 23.0 49.0 54.0 26.0

PMPM (USD) $2.99 $2.99 $2.99 $2.99 $2.99 $2.99 $2.99

Annual Fee (USD) $35.88 $35.88 $35.88 $35.88 $35.88 $35.88 $35.88

TAM (Millions, USD) $2,870.4 $1,578.7 $1,507.0 $825.2 $1,758.1 $1,937.5 $932.9

Total TAM $11,409.8

Addressable TAM (Employer and Medicaid) $6,386.6

We think the ideal telemedicine business model utilizes a PMPM fee with unlimited consults and no per visit fee. Our analysis suggests associated TAM is compelling.

Teladoc TAM Analysis TDOC TAM Ambulatory Outpatient ED

Total Visits (MMs) 1,239 1,008 101 130

Estimated Treatable 33% 33% 33% 33%

Teladoc Visit Opportunity (MMs) 409 333 33 43

TAM (High - $49 per visit, MMs) $20,027.9 $16,299.4 $1,629.0 $2,099.6

TAM Mix 81.4% 8.1% 10.5%

TAM (Low - $39 per visit, MMs) $15,940.6 $12,973.0 $1,296.5 $1,671.1

TAM Mix 81.4% 8.1% 10.5%

Conservative TAM (excludes Ambulatory Visits)

TAM High ($49 per Visit, MMs) $3,728.6 $0.0 $1,629.0 $2,099.6

TAM Low ($39 per Visit, MMs) $2,967.6 $0.0 $1,296.5 $1,671.1

TAM ComponentsAggregate

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Exhibit 30: An Illustration of TDOC’s Addressable Visit Sources

Source: Company documents, CDC, and Stifel formatting

In Exhibit 31, we use Teladoc’s TAM by visit analysis and make an adjustment for the number of patients likely to never use telemedicine, as well as an adjustment for the total addressable number of estimated visits. Our analysis starts with an aggregate visit opportunity of roughly 1.239 million visits, and then apply a factor of 30% (midpoint of 24% and 36%) to reflect the number of consumers not willing to utilize telemedicine. Our visit TAM estimate is then based on the 77% of respondents who strongly preferred, somewhat preferred, or were neutral toward telemedicine services. We are left with an aggregate possible visit opportunity of roughly 867.0 million visits, which we then apply the 33% estimated treatable visit factor to the 867.0 million visits. This yields an aggregate possible visit opportunity TAM of roughly 274 million visits, which equates to a TAM between roughly $10.7 billion ($39 per visit fee) and $13.4 billion ($49 per visit fee). Lastly, our conservative TAM estimates exclude all ambulatory visits, as we believe based on our pricing analysis that Teladoc’s costs do not necessarily compare favorably to ambulatory physician visits. Based on our conservative TAM (outpatient plus emergency room), we estimate the total addressable market lies between $2.1 billion ($39 per visit fee) and $2.6 billion ($49 per visit fee).

Exhibit 31: An Adjusted Look at TDOC’s TAM According to Visits Analysis

Source: Company documents, American Well, CDC, and Stifel Formatting

General and Family 21.2% Internal Medicine 13.9% Otolaryngology 2.1%

Dermatology 3.9% Pediatrics 13.1% General Surgery 1.9%

Cardiovascular 2.9% OB/GYN 7.9% Neurology 1.4%

Psychiatry 2.6% Ortho 6.3% All Other 12.9%

Urology 2.0% Ophthalmology 5.5% Total 67.5%

Total 32.6% Oncology 2.5%

TDOC Addressable TDOC Unaddressable

TDOC TAM Ambulatory Outpatient ED

Total Visits (MMs) 1,239 1,008 101 130

Not Willing to Use Telemedicine 30% 30% 30% 30%

Visits Adj. (Unaddressable) 372 302 30 39

New Visits 867 706 71 91

Strongly Prefer (28%) 243 243

Somewhat Prefer (43%) 373 373

Neutral (12%, we assume 6%) 52 52

Total (77%) 829 668 71 91

Estimated Treatable 33% 33% 33% 33%

Adj. Addressable Visits Aggregate 274 220 23 30

TAM High ($49 per Visit, MMs) $13,405.0 $10,795.0 $1,140.3 $1,469.7

TAM Low ($39 per Visit, MMs) $10,669.3 $8,592.0 $907.6 $1,169.8

Conservative TAM (excludes Ambulatory Visits)

TAM High ($49 per Visit, MMs) $2,610.0 $0.0 $1,140.3 $1,469.7

TAM Low ($39 per Visit, MMs) $2,077.3 $0.0 $907.6 $1,169.8

Aggregate TAM Components

Page 27


We illustrate what the telemedicine visit total addressable market might look like based on IBISWorld revenue estimates in Exhibit 32. Our analysis starts with telemedicine industry revenue estimates from IBISWorld for the 2014 to 2020 period. We then assume that all revenue is associated with a per visit fee and run one scenario based on a $39 per visit fee and a second scenario based on a $49 per visit fee. Next, we calculate the total number of assumed visits based on these per visit fee scenarios. Then we attempt to calculate the assumed penetration rate based on Teladoc’s visit TAM of roughly 417 million visits. Lastly, we apply an average visit per user factor of 1.36 in order to achieve the unique visit penetration rate. We believe that our analysis based on IBISWorld estimates suggests the PMPM model may be more lucrative given weak expectations for overall visit volume penetration by 2020. Furthermore, we think our IBISWorld analysis suggests that the right model for Teladoc may revolve around PMPM fees with unlimited consults for members e.g., the Netflix of telemedicine. After all, a PMPM model only monetized at $2.99 or $4.99 per month, based on a 313 million American population yields a TAM of between $11.2 billion and $18.7 billion.

Exhibit 32: Backing into the Telemedicine Total Addressable Visit Opportunity

Source: Company documents, American Telehealth Association (ATA), CDC, IBISWorld, Softwareadvice.com, and Stifel estimates

In Exhibit 33, we attempt to understand Teladoc’s total addressable market opportunity based on lives across several insurance population verticals and PMPM fees. Our analysis multiplies the number of lives in each vertical by a $0.50 PMPM fee multiplied by 12, which yields the annual total addressable market opportunity. We use a $0.50 PMPM fee as that is what Teladoc is expected to charge on a PMPM basis in FY16. Our analysis suggests the PMPM total addressable market is roughly $1.9 billion. Our more conservative estimate, which includes the large, mid, and small employer market, as well as Medicaid, yields a TAM of $1.1 billion. Based on Teladoc’s current 12.6 million membership base, Teladoc represents about 4.0% of a 318.0 million addressable lives opportunity, and Teladoc represents about 10.2% of a 124.0 million addressable lives opportunity.

Telehealth Market Summary 2014 2015 2016 2017 2018 2019 2020

Telehealth Revenue $465.7 $645.0 $931.2 $1,406.7 $1,981.2 $2,695.1 $3,461.3

Y/Y Growth 39% 44% 51% 41% 36% 28%

Telemedicine Revenue (13% of Mix) $60.5 $83.9 $121.1 $182.9 $257.6 $350.4 $450.0

Y/Y Growth 39% 44% 51% 41% 36% 28%

Visit Volume @ $39 Per 1.6 2.2 3.1 4.7 6.6 9.0 11.5

Visit Volume @ $49 Per 1.2 1.7 2.5 3.7 5.3 7.2 9.2

ATA Visits (based on 0.8M baseline) 0.8 1.2 1.7 2.5 3.3 4.3

Visit Penetration @ $39 Per 0.4% 0.5% 0.7% 1.1% 1.6% 2.2% 2.8%

Visit Penetration @ $49 Per 0.3% 0.4% 0.6% 0.9% 1.3% 1.7% 2.2%

Vist Factor (1.36 visits per user) 1.36 1.36 1.36 1.36 1.36 1.36 1.36

Unique Visit Penetration @ $39 Per 0.3% 0.4% 0.5% 0.8% 1.2% 1.6% 2.0%

Unique Visit Penetration @ $49 Per 0.2% 0.3% 0.4% 0.7% 0.9% 1.3% 1.6%

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Exhibit 33: Analyzing the TAM Based on Insurable Lives and Average Visits

Source: eHealth, GoHealth, Health Affairs, and Stifel estimates

In Exhibit 34, we attempt to understand Teladoc’s total addressable market based on the number of insurable lives across several market segments. Our analysis multiplies the number of lives in each respective vertical by the cost per visit multiplied by the visit per year factor in order to calculate the estimated total addressable market. We assume a $39 per visit fee and a 0.2 visit factor. Our visit factor estimate comes from the PwC market segment analysis we illustrated and discussed in the Teladoc Corporate Overview section of this report. The 0.2 coincides with 0.1 outpatient and 0.1 emergency room visits across the majority of population verticals put forth in the PwC analysis that we believe the Teladoc telemedicine platform services. The estimate total addressable market in aggregate equates to roughly $2.5 billion. We believe the current addressable market is likely limited to the employer markets (Large, mid, and small), as well as the Medicaid market. Assessing these limitations reduces the TAM estimate to roughly $1.1 billion.

Exhibit 34: Analyzing the TAM on Insurable Lives and PMPM Fees

Source: Company documents, eHealth, GoHealth, Health Affairs, and Stifel estimates

Competition

We believe Teladoc’s competition encompasses not only other private pure play telemedicine vendors, but also urgent care centers and free standing emergency rooms. The telemedicine industry essentially competes with any way healthcare can be delivered outside of the traditional in-person visit at a primary care physician’s office or a hospital. Based on our total addressable market analysis, we believe telemedicine may not yet represent a compelling alternative to traditional primary care physician visits. Furthermore, we believe traditional pure play telemedicine business models continue to evolve. Teladoc’s business model combines a per member per month subscription fee with per visit fees, whereas several competitors are attempting to go to market on visit fees alone. The primary problem facing all vendors seems to revolve around pricing, as utilization rates for the promising technology remain quite low. While each business model seems to have its own merits, we believe the entity that most closely focuses on driving adoption / utilization of telemedicine in general will likely represent the long-term winner. A major trend among marquee clients seems to revolve around allowing different telemedicine models to compete against one another, as entities such as Home Depot, CVS, and Walgreens, among others are utilizing several of the major telemedicine providers rather than an exclusive provider. We note that the burden of payment varies as to whether the service is delivered direct-to-consumer or delivered as part of a group benefit. We profile several key competitors, below.

Employer - Employer - Individual &

Large & Mid Small Uninsured Family Medicare Medicaid Government

Lives (millions) 80.0 44.0 42.0 23.0 49.0 54.0 26.0

PMPM (USD) $0.50 $0.50 $0.50 $0.50 $0.50 $0.50 $0.50

TAM (Millions, USD) $480.0 $264.0 $252.0 $138.0 $294.0 $324.0 $156.0

Total TAM $1,908.0


Penetration

TDOC as % of Total Lives 4.0%

TDOC as % of Addressable TAM Lives 10.2%

Employer Employer Individual &

Large & Mid Small Uninsured Family Medicare Medicaid Government

Lives (Millions) 80.0 44.0 42.0 23.0 49.0 54.0 26.0

Cost Per Visit (USD) $39.00 $39.00 $39.00 $39.00 $39.00 $39.00 $39.00

Visit Per Year 0.20 0.20 0.20 0.20 0.20 0.20 0.20

TAM (Millions, USD) $624.0 $343.2 $327.6 $179.4 $382.2 $421.2 $202.8

Total TAM $2,480.4


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Doctor On Demand. The company provides video visits with Board Certified Physicians, Psychologists, and Lactation Consultants via smartphones, tablets, and PC via the Doctor On Demand app. The company’s telemedicine services are used by employers, health systems, health plans, and consumers. The company’s business model revolves around a per visit fee for each video visit. Video visit pricing varies across specialties and session length. Medical and pediatrics visits cost $40 per visit. Psychologists cost $50 per 25 minute session, and $95 per 50 minute session. Lactation consultants cost $40 per 25 minute session, and $70 per 50 minute session. Top conditions treated include cold & flu, sore throat, urinary tract infections, skin issues & rashes, diarrhea & vomiting, sports injuries, travel illness, and smoking cessation. Additionally, Doctor On Demand offers consumers their first visit for free. Based on our research, Doctor On Demand seems to be leading the industry against the PMPM model for telemedicine. Like Teladoc, Doctor On Demand saves money when considering the full cost of care (copay + post visit expenses). Nevertheless, we believe the average healthcare consumer merely looks at what will it cost me to see the doctor today, which in our view means per visit fees compete with traditional plan copays. We note that at $40 per visit, Doctor On Demand may price its per visit fees significantly higher than Teladoc. We believe that the per visit fee on Teladoc ranges between $29 and $49 per visit and may be lower based on client negotiated pricing. While we recognize that Doctor On Demand represents a compelling telemedicine disruptor, much like Teladoc, it is far from certain that Doctor On Demand represents the most compelling business model in telemedicine. American Well. American Well facilitates physician or health care provider consultations via computer, tablet, or phone. Consultations costs $49 or less for a physician, therapists cost $95 or less per consultation, and dietitian consultations cost $25 or less. A key component of the American Well offering revolves around the technology platform the company provides to help facilitate telemedicine services via its AW8 platform. Commonly treated conditions include: cough, sinus infection, sore throat, bronchitis, vomiting, diarrhea, fever, pinkeye, cold, flu, headache, influenza, weight concerns, smoking cessation, depression, and anxiety. MDLive. The company provides online and on-demand healthcare services via phone or secure video on a 24/7/365 basis. MDLive is designed to treat non-emergency issues. The most commonly treated ailments include: acne, allergies, asthma, bronchitis, cold & flu, constipation, diarrhea, ear infections, fever, headache, insect bites, joint aches, nausea, rashes, sinus infections, sore throat, and urinary tract infections, among others. The company charges roughly $49 per visit and employs over 2,300 Board Certified physicians with an average of 15 years of experience. MDLive offers online therapy and psychiatry services through its subsidiary Breakthrough. We note that MDLive also operates a per visit fee model and foregoes the PMPM model. Chiron Health. Chiron utilizes extensive knowledge of telemedicine regulation and reimbursement to ensure physicians are reimbursed for providing telemedicine services. Similar to athenahealth, Chiron relies on a telemedicine focused rules engine that incorporates and integrates state reimbursement mandates and payer-specific nuances in order to guarantee reimbursement. The company offers at risk pricing, as Chiron guarantees reimbursement or else they will reimburse the doctor (CPT 99213 and 99214). The business model utilizes a take rate of roughly 0.5% of telemedicine collections generated. Based on Chiron’s website, the company can help physicians increase their telemedicine collections by roughly 3% to 4%. Chiron is the primary telemedicine provider within athenahealth’s More Disruption Please program. We believe their business model and positioning in telemedicine make them an attractive future acquisition candidate for athenahealth. Chronic Care Management. We note that Chronic Care Management represents a compelling form of telemedicine. Currently, CCM is reimbursable via CPT code 99490 which compensates a provider roughly $42 per month for coordinating care of Medicare patients with two or more chronic medical conditions. We believe two vendors providing CCM services are Chiron Health (described above) and private company CareSync. Urgent Care Centers and Stand-alone Emergency Rooms. While the majority of pure play telemedicine vendors provide data that their services are cheaper than urgent care or emergency room visits, consumers continue to utilize these seemingly more expensive services. The first major issue revolves around comfort with using the telephone or video chats for medical consultations. Anyone who has recently rented a car from a Hertz tele-rental kiosk will immediately recognize the awkwardness with an initial tele-anything consultation. We believe a significant adoption curve exists among consumers and believe several visits are needed to drive natural comfort with the telemedicine process. Additionally, we believe certain states such as Texas are

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committed to utilizing free standing emergency rooms as a pathway to solving the care access crisis. Lastly, while urgent care and emergency room visits are quite pricey, current telemedicine business models savings mostly go to the employer or health plan. In Texas, free standing emergency rooms have grown at a compound annual growth rate of 49% between 2010 and 2015. The majority of these free standing emergency rooms are in the Dallas and Houston metropolitan areas. According to a story in the Texas Tribune (published August 2015) these entities are mostly in higher income areas as the neighborhoods where freestanding ERs exist in Texas boast incomes 49% above state averages. Furthermore, traditional health systems are more willing to work with these entities and even hospitals are beginning to operate their own freestanding ER clinics. While freestanding emergency rooms are more expensive, the state of Texas requires them to post information on costs upfront before care is accepted. We believe the popularity of freestanding emergency rooms illustrates the problem facing telehealth, specifically that utilization is a function of consumer convenience near term, rather than employer or health plan savings. We illustrate the growth of freestanding emergency rooms in Texas in Exhibit 35, below.

Exhibit 35: Texans Have an Affinity for the Convenience of Freestanding Emergency Rooms

Source: Texas Tribune August 2015 and Stifel formatting

Management

We believe Teladoc benefits from a capable and well-seasoned management team. The current management team oversaw the complete redesign of Teladoc’s underlying technology platform and has helped steward the company to its current growth profile. Additionally, management benefits from significant health plan organization experience. Given management’s success to date, the key question will be can management successfully navigate the business model risk pressures stemming from competitor business models and pricing pressure. In our view, the primary issue facing management revolves around what we describe as a mature management team operating in an immature market environment. We believe TDOC’s management team exhibits deep healthcare expertise that will serve the company well in dealing with employers, health plan, and health system clients. We believe management’s inherent expertise predisposes the company to focus on monetization first, as management seems well-suited to navigate the complexities of reimbursement and pricing across several insurable lives verticals. While management’s healthcare experience represents an attractive skill set, we are concerned that such a skill set may be ill suited to operate a business in an immature market environment. In our view, the primary focus in an immature environment should revolve around driving adoption / utilization and monetization second. We remain concerned that the TDOC model must do more to show robust adoption / utilization, and are also concerned the company seeks to increase per visit pricing, when we believe current monetization is already too high.

22 2647

85

136

162

2010 2011 2012 2013 2014 2015

Growth of Freestanding ERs in Texas

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Jason Gorevic, CEO, joined Teladoc in June 2009 as President and CEO. Previously, Mr. Gorevic worked in several capacities for WellPoint, Inc., most recently as President of Empire BlueCross BlueShield. Between 2002 and 2005, he served as Chief Sales and Marketing Officer for Empire BlueCross BlueShield. Prior to Empire BlueCross BlueShield, he served as CEO of Gemfinity, an electronic marketplace and purchasing aggregator, of which he was the founder. Prior to Gemfinity, Mr. Gorevic served as General Manager of Business Messaging at Mail.com. Prior to joining Mail.com, he served in various roles for Oxford Health Plans, Inc. Mr. Gorevic holds a B.A. in international relations from the University of Pennsylvania. Mark Hirshhorn, CFO, joined Teladoc in October 2012 in his current role. Prior to Teladoc, Mr. Hirshhorn spent eight years with RCS/Media Monitors where he served as Executive Vice President and Chief Financial Officer. From 2000 to 2003, he served as CFO for several technology companies including BT Radianz. Between 1996 and 2000, Mr. Hirshhorn served as Vice President and Global Controller of RSL Communications. He holds a B.A. from Rutgers University, as well as an MBA from Rutgers Business School, and is a CPA and member of the American Institute of Certified Public Accountants (AICPA). Michael King joined Teladoc as Chief Sales Officer in 2010. Prior to joining Teladoc, Mr. King worked at Healthways, Inc., between 2001 and 2010. His most recent role at Healthways was Senior Vice President of Insight and Innovations. Prior to Healthways, Mr. King served in various roles for CareSteps.com, WellPath Community Health Plans, Doctors Health Plan, and Aetna. He holds a B.S. in employment relations and management from Michigan State University and attended the General Managers program at Harvard Business School. Adam Vandervoort joined Teladoc in February 2015 as Chief Legal Officer and Secretary. Prior to joining Teladoc, Mr. Vandervoort served as Corporate Vice President, General Counsel and Secretary for Independence Holding Company from 2006 to 2015. Previously, he served as an in-house attorney with FedEx Corporation. Mr. Vandervoort holds A.B. and A.M. degrees from the University of Chicago and a J.D. from the University of Pennsylvania Law School.

Teladoc Revenue Model

We believe the Teladoc revenue model consists of per member per month subscription fees and per visit fees. Our model’s primary variable revolves around membership growth, which we then use to build out our PMPM revenue run rate and ultimately work toward our visits and per visit fee revenue run rate. Our Teladoc Revenue model consists of PMPM subscription fees which represents the number of members multiplied by a per member per month fee multiplied by three to represent the full quarter. Our visit revenues consist of utilizing an assumption around a visit per member assumption (full system, which assumes all visits are unique) multiplied by the number of members in the given period to reach total visits for the period. We then multiply our estimated number of visits for the period by a blended visit fee in order to achieve our visit fee revenues.

Teladoc Valuation

We are initiating coverage on the shares of Teladoc with a Hold rating. Our view is that current valuation does not yet offer investors an attractive discount given our myriad of concerns. We note that more bullish investors will likely view shares as attractive given the perceived revenue growth profile. Our view holds that while revenue growth may look attractive, and therefore valuation may be attractive vis-a-vis perceived revenue growth rates, we believe the risks associated with revenue expectations and revenue growth face risk. We outline our valuation framework, below.

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In Exhibit 36, we illustrate Teladoc’s consensus valuation on an FY17E basis compared to select comparable companies. For our valuation exercise, we use ATHN, MDSO, FIT, WBMD, HSTM, and EVDY, as our comparable group. Based on the current FactSet FY17 consensus price target of roughly $35 per share, TDOC shares should trade at an enterprise multiple of roughly 7.0x (a range of 6.0x to 7.8x) the FactSet consensus FY17 revenue estimate of roughly $176.4 million. We note that the average EV/revenue multiple of our comp universe is roughly 3.7x FY17E revenues. The average EV/Revenue multiple of high growth digital health platforms (ATHN, MDSO, and FIT), is roughly 5.4x FY17E Stifel revenue estimates. The average EV/Revenue multiple of recently public and riskier digital healthcare companies (FIT, WBMD, HSTM, and EVDY) is roughly 2.7x FY17E Stifel revenue estimates.

Exhibit 36: Teladoc Comparative Valuation

Source: Company documents, FactSet, and Stifel estimates.

Notes: 1.) We use HSTM’s current price given our Hold rating on the shares. 2.) Revenues represent 2017 consensus for TDOC and 2017 Stifel estimates for the comparable universe

We provide our Teladoc valuation analysis in Exhibit 37. The left side of the chart illustrates TDOC’s current EV/Revenue multiples for FY15, FY16, and FY17, based on current share price of $17.99. The right side of the chart illustrates TDOC’s per share value at select EV/Revenue multiples in the 2.5x to 4.5x range based on our 2017 revenue estimate. Currently, we believe the fair valuation range is an EV multiple between 2.5x to 3.5x our FY17 revenue estimate of $168.5 million. We believe shares may more accurately discount the inherent risks associated with TDOC in the EV/Revenue multiple range of 2.5x to 3.0x, which equates to a per share price range of roughly $14.50 to $16.50. Given our current reservations about the market in FY17, we would be inclined to wait for a multiple at the low end of the 2.5x to 3.0x range to potentially become more constructive, all else being equal.

TDOC ATHN MDSO FIT WBMD HSTM1 EVDY

Price Target $35.29 $190.00 $60.00 $60.00 $52.00 $21.36 $9.50

Shares 38.4 41.0 56.3 243.7 38.5 30.5 32.9

Market Cap $1,354.4 $7,790.0 $3,378.0 $14,622.0 $2,002.0 $651.5 $312.6

Cash $152.0 $116.7 $492.9 $575.5 $612.3 $144.8 $35.1

Debt $27.1 $300.0 $249.7 $0.0 $809.0 $0.0 $106.0

EV $1,229.5 $7,973.3 $3,134.8 $14,046.5 $2,198.7 $506.7 $383.5

Revenues2 $176.4 $1,302.3 $560.1 $3,164.1 $764.6 $259.3 $279.8

EV Multiple 7.0x 6.1x 5.6x 4.4x 2.9x 2.0x 1.4x

EV Multiple Avg (All Comps) 3.7x

EV Multiple Avg (ATHN, MDSO, FIT) 5.4x

EV Multiple Avg (FIT, WBMD, HSTM, and EVDY) 2.7x

Teladoc Comparative Valuation

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Exhibit 37: Stifel Teladoc Valuation Analysis

Source: Company documents, FactSet, and Stifel estimates

FY15E FY16E FY17E

Price $17.99 $17.99 $17.99 $14.23 $16.43 $18.62 $20.82 $23.02

Shares 38.4 38.4 38.4 38.4 38.4 38.4 38.4 38.4

Market Cap $690.4 $690.4 $690.4 $546.2 $630.5 $714.8 $799.1 $883.3

Cash $152.0 $152.0 $152.0 $152.0 $152.0 $152.0 $152.0 $152.0

Debt $27.1 $27.1 $27.1 $27.1 $27.1 $27.1 $27.1 $27.1

EV $565.5 $565.5 $565.5 $421.4 $505.6 $589.9 $674.2 $758.4

Revenues $76.3 $118.6 $168.5 $168.5 $168.5 $168.5 $168.5 $168.5

EV Multiple 7.4x 4.8x 3.4x 2.5x 3.0x 3.5x 4.0x 4.5x

Stifel TDOC Valuation Analysis

FY17 Stifel Valuation Range

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Company Description

Teladoc represents a leading telehealth platform that facilitates the delivery oftelemedicine services to employers and health plans, and increasingly healthsystems. The company provides telemedicine services via its platform to membersof the employer and health plan lives they serve. Teladoc’s telemedicine servicesrevolve around providing on-demand healthcare anytime, anywhere, via mobiledevices, the Internet, video and phone. The company currently services roughly12.5 million members and works with 1,000 physicians and 1,500 behavioral healthprofessionals.

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Teladoc, Inc. (TDOC)Statement of Income($ in 000s, except per share) FY FYE FYE FYE 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 EFY Ends Dec 2014 2015 2016 2017 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15

Subscription fees 35,292 62,755 96,264 137,440 7,990 8,231 8,724 10,347 13,190 15,175 16,977 17,413 Visit fees 8,236 13,515 22,345 31,105 1,410 2,058 2,181 2,587 3,298 3,108 2,996 4,113 TOTAL REVENUE 43,528 76,270 118,609 168,544 9,400 10,289 10,905 12,934 16,488 18,283 19,973 21,526

Cost of Revenues 9,929 20,589 30,751 42,017 1,982 2,027 2,151 3,769 5,281 4,793 4,488 6,027

Gross Profit 33,599 55,681 87,858 126,528 7,418 8,262 8,754 9,165 11,207 13,490 15,485 15,499

Advertising and Marketing 7,662 19,973 24,050 25,282 2,518 1,436 1,984 1,724 4,341 4,730 5,284 5,618 Sales 11,571 18,550 22,882 26,124 2,145 3,033 3,263 3,130 3,682 4,397 5,111 5,360 Technology and Development 7,573 14,140 17,791 23,596 1,192 2,064 1,960 2,357 2,906 3,203 3,941 4,090 General and Administrative 19,623 54,270 57,664 58,990 3,344 4,033 4,754 7,492 11,968 16,488 12,253 13,561 Depreciation and Amortization 2,320 4,873 6,992 8,748 414 554 650 702 903 923 1,491 1,556

Operating Income (15,150) (56,126) (41,521) (16,213) (2,195) (2,858) (3,857) (6,240) (12,593) (16,251) (12,595) (14,687)

Interest Expense (Net) (1,499) (2,205) (2,022) (2,022) (54) (349) (510) (586) (568) (642) (489) (506)

Pretax income (16,649) (58,330) (43,543) (18,235) (2,249) (3,207) (4,367) (6,826) (13,161) (16,893) (13,084) (15,192)

Income Taxes 388 63 (1,230) (1,600) 72 (7) 162 161 (458) 171 162 188Tax Rate -2.3% 0% NA NA -3.2% 0.2% -3.7% -2.4% 3.5% -1.0% -1.2% -1.2%

Net Income, pro forma, cont ops (17,037) (58,393) (42,313) (16,635) (2,321) (3,200) (4,529) (6,987) (12,703) (17,064) (13,246) (15,380)

Basic EPS, pro forma, cont ops (9.18)$ (3.04)$ (1.16)$ (0.45)$ (1.63)$ (1.62)$ (2.20)$ (3.56)$ (5.87)$ (7.20)$ (0.37)$ (0.42)$ Diluted EPS, pro forma, cont ops (2.35)$ (1.65)$ (1.09)$ (0.42)$ (1.63)$ (1.62)$ (2.20)$ (0.30)$ (0.46)$ (0.46)$ (0.35)$ (0.40)$ Shares outstandingBasic 1,855 19,210 36,485 36,925 1,424 1,975 2,060 1,963 2,162 2,370 36,100 36,210Diluted 7,241 35,447 38,763 39,203 1,424 1,975 2,060 23,507 27,613 37,308 38,378 38,488

Cash EPS (before stock comp) (7.25)$ (1.58)$ (1.01)$ (0.33)$ (2.25)$ (2.09)$ (2.63)$ (0.27)$ (0.43)$ (0.44)$ (0.33)$ (0.38)$ Adjusted EBITDA (11,926) (48,511) (31,267) (3,673) (1,634) (2,185) (3,102) (5,005) (10,879) (14,761) (10,386) (12,485) Free Cash Flow (13,093) (57,547) (42,433) (23,729) (2,597) (3,463) (2,246) (4,787) (11,135) (10,775) (19,122) (16,515) Percentage of RevenuesGross profit, pro forma 77.2% 73.0% 74.1% 75.1% 21.1% 19.7% 19.7% 29.1% 32.0% 26.2% 22.5% 28.0%Advertising and Marketing 17.6% 26.2% 20.3% 15.0% 26.8% 14.0% 18.2% 13.3% 26.3% 25.9% 26.5% 26.1%Sales 26.6% 24.3% 19.3% 15.5% 22.8% 29.5% 29.9% 24.2% 22.3% 24.0% 25.6% 24.9%Technology and Development 17.4% 18.5% 15.0% 14.0% 12.7% 20.1% 18.0% 18.2% 17.6% 17.5% 19.7% 19.0%General and Administrative 45.1% 71.2% 48.6% 35.0% 35.6% 39.2% 43.6% 57.9% 72.6% 90.2% 61.3% 63.0%Operating Income -34.8% -73.6% -35.0% -9.6% -23.4% -27.8% -35.4% -48.2% -76.4% -88.9% -63.1% -68.2%Adjusted EBITDA -27.4% -63.6% -26.4% -2.2% -17.4% -21.2% -28.4% -38.7% -66.0% -80.7% -52.0% -58.0%Net Income, pro forma -39.1% -76.6% -35.7% -9.9% -24.7% -31.1% -41.5% -54.0% -77.0% -93.3% -66.3% -71.4%Capex 2.5% 8.5% 5.8% 6.0% 2.3% 3.5% 1.4% 2.6% 2.2% 17.0% 10.1% 4.6%Free cash flow -30.1% -75.5% -35.8% -14.1% -27.6% -33.7% -20.6% -37.0% -67.5% -58.9% -95.7% -76.7%Year / Year Growth RateNet Sales 118.7% 75.2% 55.5% 42.1% -35.0% 75.4% 77.7% 83.2% 66.4%Subscription fees 106.6% 77.8% 53.4% 42.8% -39.4% 65.1% 84.4% 94.6% 68.3%Visit fees 191.4% 64.1% 65.3% 39.2% -8.5% 133.9% 51.0% 37.4% 59.0%Adjusted EBITDAOperating IncomePretax IncomeNet IncomeDiluted EPSGuidance from CompanyTotal RevenuesAdjusted Diluted EPSAdjusted Diluted EPS (Second Revision)Adjusted Diluted EPS (Third Revision)

Steve Rubis (214) 706 - 9451

Updated: January 4, 2016

Source: Company reports and Stifel estimates

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Teladoc, Inc. (TDOC)Summary Consolidated Balance SheetFY Ends Dec($ in 000s)

FY 13 FY 14 FY 15E FY 16E FY 17E

Assets

Current AssetsCash and equivalents 3,212 46,436 135,483 93,050 69,320Accounts receivable 2,610 6,839 16,743 22,268 37,023Other 1,004 1,387 2,606 2,712 2,822

Total Current Assets 6,826 54,662 154,831 118,029 109,165

PP&E, net 331 1,065 6,234 9,672 14,707Goodwill 14,786 28,454 55,403 51,868 48,198Intangible assets 5,350 7,530 16,854 16,854 16,854Other assets 93 296 284 284 284

Total Assets 27,386 92,007 233,607 196,708 189,208

Liabilities & Shareholders' Equity

Current LiabilitiesAccounts Payable 67 2,210 6,697 7,040 10,346Accrued Expenses 3,687 3,918 8,286 9,326 10,497Accrued Compensation 1,387 3,358 6,135 6,905 7,771Long-term debt and capital leases, current 0 833 1,250 1,250 1,250

Total Current Liabilities 5,141 10,319 22,368 24,521 29,864

Long-Term Debt 3,000 25,196 25,863 25,863 25,863Other Long-Term Liabilities 190 3,261 7,573 7,573 7,573

Shareholders' Equity 19,055 53,231 177,803 138,751 125,908

Total Liabilities & Shareholders' Equity 27,386 92,007 233,607 196,708 189,208


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Teladoc, Inc. (TDOC)Statement of Cash Flows($ in 000s) 1Q15 2Q15 3Q15 4Q15 E

F2013 F2014 03/31/15 06/30/15 09/30/15 12/31/15 F2015E F2016E F2017ECash flows from operating activitiesNet Income (6,019) (17,037) (12,703) (17,064) (13,246) (15,380) (58,393) (42,313) (16,635)Adjustments to reconcile net income to net cash

Depreciation and Amortization 754 2,320 903 923 1,491 1,556 4,873 6,992 8,748Allowance for doubtful accounts 504 1,308 451 507 460 1,418 0 0Stock based compensation 298 533 811 567 718 646 2,742 3,262 3,792Deferred income taxes 94 388 (458) 171 162 (125) 0 0Provision for deferred income taxes 2 106 39 42 160 241 0 0Changes in operating assets and liabilities, net

Accounts Receivable (928) (5,079) (2,281) (358) (776) (7,373) (10,788) (5,526) (14,755)Prepaid expenses and other current assets (663) (436) (1,593) 1,235 (1,215) (25) (1,598) (104) (109)Other assets 37 (185) 12 20 (19) (0) 13 (1) (1)Accounts Payable (1,099) 2,099 1,357 2,391 (4,517) 4,641 3,872 343 3,307Accrued expenses and other current liabilities 329 2,679 3,475 591 (3,466) 241 841 1,040 1,171Accrued compensation 802 1,971 (670) 2,318 868 179 2,695 770 867Other liabilities 89 (26) 68 1,398 2,598 0 4,064 0 0

Changes in operating accounts (1,686) 1,023 621 7,595 (6,527) (2,337) (648) (3,479) (9,521)

Net cash provided by operating activities (6,053) (11,359) (10,336) (7,259) (16,782) (15,516) (49,893) (35,539) (13,616)

Cash Flows from investing activitiesPurchase of property and equipment (204) (1,069) (365) (3,101) (2,015) (999) (6,480) (6,895) (10,113)Purchase of internal software (1,090) (665) (434) (415) (325) 0 (1,174) 0 0Purchase of marketable securities 0 0 0 0 (100,556) 0 (100,556) 0 0Proceeds from the liquidiation / sale of marketable securities 0 0 0 0 2,509 0 2,509 0 0Acquisition of businesses, net of cash (16,462) (13,844) (3,269) (10,276) (4,222) 0 (17,767) 0 0

Net cash used in investing activities (17,756) (15,578) (4,068) (13,792) (104,609) (999) (123,468) (6,895) (10,113)

Cash flows from financing activitiesProceeds from the exercise of stock options and warrants 595 747 28 233 65 326 0 0Proceeds from the issuance of convertible preferred stock 14,803 50,082 0 0 0 0Proceeds from borrowing under bank and other debt 3,000 19,700 0 6,800 0 6,800 0 0Repayment of bank and other debt (71) (368) 0 (2,411) (3,359) (5,770) 0 0Proceeds from issuance of common stock under IPO 0 0 0 (208) 163,326 163,118 0 0

Net cash provided by (used in) financing activities 18,327 70,161 28 4,414 160,032 0 164,474 0 0

Effect of exchange rate changes on cash 0 0 0 0 0 0 0 0

Effect of discontinued operations on cash 0 0 0 0 0 0 0 0

Net increases in cash and cash equivalents (5,482) 43,224 (14,376) (16,637) 38,641 (16,515) (8,887) (42,433) (23,729)

Cash and cash equivalents, beginning of period 8,694 3,212 46,436 32,060 15,423 54,064 46,436 37,549 (4,884)

Cash and cash equivalents, end of period 3,212 46,436 32,060 15,423 54,064 37,549 37,549 (4,884) (28,614)


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Teladoc, Inc. (TDOC)Discounted Cash FlowFY Ends Dec (USD, MMs) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Revenue $43.5 $76.3 $118.6 $168.5 $229.6 $298.4 $373.0 $447.6 $514.8 $576.6 $634.2 $685.0Y/Y Growth 26.5% 75.2% 55.5% 42.1% 36.2% 30.0% 25.0% 20.0% 15.0% 12.0% 10.0% 8.0%

EBIT ($15.2) ($56.1) ($41.5) ($16.2) ($11.6) $3.0 $11.2 $22.4 $38.6 $63.4 $79.3 $92.5EBIT as % of Sales -34.8% -73.6% -35.0% -9.6% -5.0% 1.0% 3.0% 5.0% 7.5% 11.0% 12.5% 13.5%

NOPAT ($9.8) ($36.5) ($27.0) ($10.5) ($7.5) $1.9 $7.3 $14.5 $25.1 $41.2 $51.5 $60.1CAPEX $1.1 $6.5 $6.9 $10.1 $13.9 $14.9 $15.9 $16.8 $18.0 $20.2 $22.2 $24.0CAPEX as % of Sales 2.5% 8.5% 5.8% 6.0% 6.1% 5.0% 4.3% 3.8% 3.5% 3.5% 3.5% 3.5%

D&A $2.3 $4.9 $7.0 $8.7 $10.5 $11.9 $14.9 $17.9 $20.6 $23.1 $25.4 $27.4D&A as % of Sales 5.3% 6.4% 5.9% 5.2% 4.6% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%

Increase in WC ($0.6) $97.0 $3.5 $9.5 $8.6 $10.4 $13.1 $15.7 $18.0 $20.2 $22.2 $24.0As % o Sales -1.3% 127.2% 2.9% 5.6% 3.7% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5%

Free Cash Flow ($8.0) ($135.1) ($30.4) ($21.4) ($19.5) ($11.5) ($6.7) $0.0 $9.7 $23.9 $32.5 $39.6$571.6

AssumptionsWACC 11.9% 2016E 2017EPerpetuity Growth 5.0% $480.1 $506.9

$124.9 $124.9WACC 11.9% $605.0 $631.8After-Tax cost of debt 6.5% 30%Cost of Equity 14.2% 70% 38.8 38.8Beta 1.3Risk Free Rate 2.5% $15.61 $16.30Market Premium 9.0%Tax Rate 35.0%


DCF Debt

Unlevered

Shares Outstanding

DCF Value

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Important Disclosures and Certifications

I, Steven A. Rubis, certify that the views expressed in this research report accurately reflect my personal viewsabout the subject securities or issuers; and I, Steven A. Rubis, certify that no part of my compensation was, is,or will be directly or indirectly related to the specific recommendations or views contained in this researchreport. Our European Policy for Managing Research Conflicts of Interest is available at www.stifel.com.

Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q18

16

24

32

40

2013 2014 2015 2016

Rating and Price Target History for: Teladoc, Inc. (TDOC) as of 01-04-2016

Created by BlueMatrix

Rating Key

B - Buy UR - Under Review

H - Hold NR - No Rating

S - Sell NA - Not Applicable

I - Initiation SU - Rating Suspended

D - Discontinued

For a price chart with our ratings and any applicable target price changes for TDOC go tohttp://sf.bluematrix.com/bluematrix/Disclosure?ticker=TDOC

Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q140

80

120

160

200

240

2013 2014 2015 2016

06/16/14I:B:$155

01/15/15B:$180

05/29/15B:$165

07/23/15B:$180

10/26/15B:$190

Rating and Price Target History for: athenahealth, Inc. (ATHN) as of 01-04-2016


Rating Key





D - Discontinued

For a price chart with our ratings and any applicable target price changes for ATHN go tohttp://sf.bluematrix.com/bluematrix/Disclosure?ticker=ATHN

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http://sf.bluematrix.com/bluematrix/Disclosure?ticker=TDOC

http://sf.bluematrix.com/bluematrix/Disclosure?ticker=ATHN

Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q10

15

30

45

60

75

2013 2014 2015 2016

06/16/14I:B:$47

07/29/14B:$55

03/23/15B:$60

04/24/15B:$65

10/27/15B:$60

Rating and Price Target History for: Medidata Solutions, Inc. (MDSO) as of 01-04-2016


Rating Key





D - Discontinued

For a price chart with our ratings and any applicable target price changes for MDSO go tohttp://sf.bluematrix.com/bluematrix/Disclosure?ticker=MDSO

The rating and target price history for athenahealth, Inc. and Medidata Solutions, Inc. and its securities prior toFebruary 25, 2015, on the above price chart reflects the research analyst's views under a different rating system thancurrently utilized at Stifel. For a description of the investment rating system previously utilized go to.www.stifel.com.

Stifel or an affiliate expects to receive or intends to seek compensation for investment banking services from Teladoc,Inc. in the next 3 months.

Stifel or an affiliate is a market maker or liquidity provider in the securities of Teladoc, Inc., athenahealth, Inc. andMedidata Solutions, Inc..

The equity research analyst(s) responsible for the preparation of this report receive(s) compensation based on variousfactors, including Stifel’s overall revenue, which includes investment banking revenue.

Our investment rating system is three tiered, defined as follows:

BUY -We expect a total return of greater than 10% over the next 12 months with total return equal to the percentageprice change plus dividend yield.

HOLD -We expect a total return between -5% and 10% over the next 12 months with total return equal to thepercentage price change plus dividend yield.

SELL -We expect a total return below -5% over the next 12 months with total return equal to the percentage pricechange plus dividend yield.

Occasionally, we use the ancillary rating of SUSPENDED (SU) to indicate a long-term suspension in rating and/ortarget price, and/or coverage due to applicable regulations or Stifel policies. SUSPENDED indicates the analyst isunable to determine a “reasonable basis” for rating/target price or estimates due to lack of publicly available informationor the inability to quantify the publicly available information provided by the company and it is unknown when theoutlook will be clarified. SUSPENDED may also be used when an analyst has left the firm.

Of the securities we rate, 54% are rated Buy, 39% are rated Hold, 2% are rated Sell and 5% are rated Suspended.

Within the last 12 months, Stifel or an affiliate has provided investment banking services for 17%, 7%, 3% and 9% ofthe companies whose shares are rated Buy, Hold, Sell and Suspended, respectively.

Additional Disclosures

Please visit the Research Page at www.stifel.com for the current research disclosures and respective target price

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http://sf.bluematrix.com/bluematrix/Disclosure?ticker=MDSO

methodology applicable to the companies mentioned in this publication that are within Stifel's coverage universe. For adiscussion of risks to target price please see our stand-alone company reports and notes for all Buy-rated andSell-rated stocks.

The information contained herein has been prepared from sources believed to be reliable but is not guaranteed by usand is not a complete summary or statement of all available data, nor is it considered an offer to buy or sell anysecurities referred to herein. Opinions expressed are subject to change without notice and do not take into account theparticular investment objectives, financial situation or needs of individual investors. Employees of Stifel, or its affiliatesmay, at times, release written or oral commentary, technical analysis or trading strategies that differ from the opinionsexpressed within. Past performance should not and cannot be viewed as an indicator of future performance.

As a multi-disciplined financial services firm, Stifel regularly seeks investment banking assignments and compensationfrom issuers for services including, but not limited to, acting as an underwriter in an offering or financial advisor in amerger or acquisition, or serving as a placement agent in private transactions.

Affiliate Disclosures

“Stifel”, includes Stifel Nicolaus & Company (“SNC”), a US broker-dealer registered with the United States Securitiesand Exchange Commission and the Financial Industry National Regulatory Authority and Stifel Nicolaus EuropeLimited (“SNEL”), which is authorized and regulated by the Financial Conduct Authority (“FCA”), (FRN 190412) and is amember of the London Stock Exchange.

Registration of non-US Analysts: Any non-US research analyst employed by SNEL contributing to this report is notregistered/qualified as a research analyst with FINRA and is not an associated person of the US broker-dealer andtherefore may not be subject to NASD Rule 2711 or NYSE Rule 472 restrictions on communications with a subjectcompany, public appearances, and trading securities held by a research analyst account.

Country Specific and Jurisdictional Disclosures

United States: Research produced and distributed by SNEL is distributed by SNEL to “Major US InstitutionalInvestors” as defined in Rule 15a-6 under the US Securities Exchange Act of 1934, as amended. SNEL is a non-USbroker-dealer and accordingly, any transaction by Major US Institutional Investors in the securities discussed in thedocument would need to be effected by SNC. SNC may also distribute research prepared by SNEL directly to USclients that are professional clients as defined by FCA rules. In these instances, SNC accepts responsibility for thecontent. Research produced by SNEL is not intended for use by and should not be made available to retail clients, asdefined by the FCA rules.

Canadian Distribution: Research produced by SNEL is distributed in Canada by SNC in reliance on the internationaldealer exemption. This material is intended for use only by professional or institutional investors. None of theinvestments or investment services mentioned or described herein is available to other persons or to anyone inCanada who is not a “permitted client” as defined under applicable Canadian securities law.

UK and European Economic Area (EEA): This report is distributed in the EEA by SNEL, which is authorized andregulated in the United Kingdom by the FCA. In these instances, SNEL accepts responsibility for the content. Researchproduced by SNEL is not intended for use by and should not be made available to non-professional clients.

Brunei: This document has not been delivered to, registered with or approved by the Brunei Darussalam Registrar ofCompanies, Registrar of International Business Companies, the Brunei Darussalam Ministry of Finance or the AutoritiMonetari Brunei Darussalam. This document and the information contained within will not be registered with anyrelevant Brunei Authorities under the relevant securities laws of Brunei Darussalam. The interests in the documenthave not been and will not be offered, transferred, delivered or sold in or from any part of Brunei Darussalam. Thisdocument and the information contained within is strictly private and confidential and is being distributed to a limitednumber of accredited investors, expert investors and institutional investors under the Securities Markets Order, 2013("Relevant Persons") upon their request and confirmation that they fully understand that neither the document nor theinformation contained within have been approved or licensed by or registered with the Brunei Darussalam Registrar ofCompanies, Registrar of International Business Companies, the Brunei Darussalam Ministry of Finance, the AutoritiMonetari Brunei Darussalam or any other relevant governmental agencies within Brunei Darussalam. This documentand the information contained within must not be acted on or relied on by persons who are not Relevant Persons. Anyinvestment or investment activity to which the document or information contained within is only available to, and will beengaged in only with Relevant Persons.

In jurisdictions where Stifel is not already licensed or registered to trade securities, transactions will only be affected inaccordance with local securities legislation which will vary from jurisdiction to jurisdiction and may require that a

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transaction carried out in accordance with applicable exemptions from registration and licensing requirements. Non-UScustomers wishing to effect transactions should contact a representative of the Stifel entity in their regional jurisdictionexcept where governing law permits otherwise. US customers wishing to effect transactions should contact their USsalesperson.

Additional Information Is Available Upon Request

© 2016 Stifel. This report is produced for the use of Stifel customers and may not be reproduced, re-distributed orpassed to any other person or published in whole or in part for any purpose without the prior consent of Stifel. Stifel,Nicolaus & Company, Incorporated, One South Street, Baltimore, MD 21202.

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