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Initiating Coverage
Teladoc (NASDAQ:TDOC) – Hold
Prices are as of the close on January 4, 2016
January 5, 2016
Steve Rubis (214) 706-9451; [email protected]
Investment Hypothesis: Dual-monetization (per member per month fees plus per visit fees) and
business model risk (competition and client concerns) drive uncertainty. We believe the current
business model is too aggressive given the general lack of awareness and utilization of
telemedicine services. The long-term telemedicine winner will focus on leveraging attractive
pricing to drive robust utilization / adoption.
Stifel does and seeks to do business with companies covered in its research reports. As a result,
investors should be aware that the firm may have a conflict of interest that could affect the objectivity
of this report. Investors should consider this report as only a single factor in making their investment
decision.
All relevant disclosures and certifications appear on pages 17-22 of this report.
1
Table of Contents
• Stifel Digital Healthcare Coverage
• Investment Rationale
• Investment Positives
• Investment Debates
2
7
8
9
• Teladoc Summary 4
• Valuation 13
• Model
• Ownership
15
16
Stifel 2-YR FY16E FY17E
Price Price Revenue Gross Gross
Company Ticker Rating Coverage 1/4/2015 Target FY15E FY16E FY17E CAGR Margins Margins
Teladoc TDOC Hold Rubis $17.99 7.5x 4.8x 3.4x 65.1% 74.1% 75.1%
Digital Healthcare / HC Technology
athenahealth ATHN Buy Rubis $158.23 $190.00 7.2x 6.0x 5.1x 21.1% 63.5% 64.4%
Medidata Solutions MDSO Buy Rubis $47.30 $60.00 6.1x 5.1x 4.3x 19.1% 77.9% 80.2%
eHealth EHTH Buy Rubis $10.28 $16.00 0.6x 0.6x N/A 6.4% N/A N/A
HealthStream HSTM Hold Rubis $21.36 2.4x 2.2x 2.0x 17.0% 57.0% 57.2%
Everyday Health EVDY Buy Rubis $6.01 $9.50 1.2x 1.1x 1.0x 17.0% 74.0% 74.5%
WebMD Health WBMD Buy Rubis $47.79 $52.00 3.2x 2.9x 2.7x 9.4% 62.0% 62.0%
Allscripts Healthcare Solutions MDRX Hold Rubis $14.43 2.3x 2.2x N/A 3.1% N/A N/A
Cerner1 CERN Sell Rubis $58.16 $48.00 4.6x 4.1x N/A 5.6% N/A N/A
Computer Programs and Systems CPSI Hold Rubis $49.36 2.7x 2.7x N/A -3.6% N/A N/A
Quality Systems2QSII Not Covered $16.85 1.7x 1.6x N/A 5.0% N/A N/A
Mean 3.2x 2.9x 3.0x 2.5% 66.9% 67.7%
Median 2.6x 2.4x 2.7x 4.0% 63.5% 64.4%
1. Our 2-YR Revenue Growth CAGR accounts for the impact of Siemens Health Services, without Siemens the CAGR jumps to roughly 28%
2. Quality Systems fiscal year ends March
Source: Company documents and Stifel estimates. Please note that financial estimates are those of the covering analyst where applicable
RevenueDigital Healthcare Coverage Universe Comparative Valuation
EV/
2
Stifel Digital Healthcare Coverage
We Would Potentially Be More Constructive
on Shares of TDOC in the 2.5x to 3.0x
EV/Sales Range, All Else Being Equal
3
Stifel Digital Healthcare Coverage
Digital Healthcare Investment Themes as They Relate to Teladoc
Deflationary Spending Environment. Outcomes-based reimbursement reform combined with technological
innovation are leading clients to focus on cost rationalization. The presupposition of telemedicine revolves
around the possibility of shifting patients away from high cost in-person visits to low cost telemedicine consults.
Outcomes-Based Technology Investment. The healthcare technology industry continues to evolve from an
adoption driven environment supported by incentives toward outcomes-driven technology investment. The
primary question is can technology make me more efficient, improve quality, and lower costs? The P x Q + Data
Paradigm
Over-Monetization. The primary question vendors must answer is monetization or user experience / adoption
first. We believe vendors should focus on the latter, but focus remains on the former. Legacy EHR vendors have
installation and maintenance revenues; TDOC has per member per month (PMPM) plus per visit fees.
Macro Trends. Many macro trends remain early and developing. Companies need to help support the
advancement of these trends. The early nature of these trends suggests it may take time for them to positively
impact companies.
Company Rating Valuation Investment Thesis Ratings
HOLD10 Buys / 0 Holds /
0 Sell
Current Multiples3.4x 2017 EV/Sales4.8x 2016 EV/Sales
7.5x 2015 EV/Sales
We Like Telemedicine, But See Business Model Risk Is Dual Monetization Sustainable? (Per Member Per
Month (PMPM) + per visit fee
Competition - Telemedicine and Urgent Care / ER Limited TAM / Low Adoption / Utilization Investor Valuation Expectations Are High
Source: Company reports, Stifel estimates, FactSet
4
Teladoc: Summary Slide
Source: Company reports, Stifel estimates, FactSet
Outcomes-Based Technology Investment
Deflationary Spending Environment
Risk Management
Price X Quantity + Data
• Unfettered Technology Adoption No Longer Drives Purchase Decisions
• Sophisticated Clients; Focused on Outcomes &
Performance; Suffering IT "Overload"
• Focus on Cost Rationalization and Efficiency Driven by Outcomes-Based Reimbursement
• Innovators with Strong Tech, Strong UX, and Attractive
Cost Win
• Investors Should Focus on What Can Likely Go Wrong• Do Prices Accurately Reflect these Possible Risks
• New Paradigm Requires Data to Justify Price and Quantity
HCIT Macro Outlook Why We Like Telemedicine
Low-Cost, Outcomes Driven Tool forPhysician Access and Physician Shortages
Telemedicine Should Be Less Expensive Than an Office Visit; More Efficient
Nascent Industry with Long Theoretical Growth Runway; Multiple Growth Levers
Why We Are Cautious on Teladoc Valuation
• Cost - Teladoc May Be More Expensive than In-Person Visits• Competition - Per Visit Fee Model Gaining Traction• TAM - Is it Truly 417M visits, or Less Than 100M Visits?
Management Says $12B to $17B TAM, Which We Think Is $2B to $4B
• Revenue Quality - Mostly PMPM Driven, Not Visits Driven
• PMPM represents 80% of Revenues, Moving to 60% Over Time
• Expectations - Premium Valuation• Target Price Estimates - of $31 to $38 per Share • Target Price Valuations Equate to 6.0x to 7.8x FY17E Revenues
• We See Revenue Quality and Revenue Growth Concerns• Expect to Be Adjusted EBITDA Positive FY17/FY18
5
Teladoc: Tear-Sheet
Source: Company reports, Stifel estimates, FactSet
Financials FY15E FY16E FY17E
Stifel Estimates
Revenue ($000s) $76.3 $118.6 $168.5
Y/Y Growth 75.2% 55.5% 42.1%
Adjusted EBITDA ($000s) ($48.5) ($31.3) ($3.7)
Y/Y Growth NM NM NM
FactSet Consensus
Revenue ($000s) $76.3 $119.0 $177.5
Y/Y Growth 75.2% 56.0% 49.1%
Adjusted EBITDA ($000s) ($50.3) ($30.9) ($2.9)
Y/Y Growth NM NM NM
Broker Sell Hold Buy
Ratings 0 0 10
Key Investment Risks:
Long-term sustainability of the TDOC business model
The evolution of telemedicine reimbursement
General lack of telemedicine awareness / usage
The ability of telemedicine to drive cost savings
TDOC's ability to meet / exceed fundamental expectations
Valuation
Valuation (Current): FY15E FY16E FY17E
Ticker Market Cap: $698.1
Price (4/2/2015) EV: $573.2 EV/Sales (Stifel): 7.5x 4.8x 3.4x
52 Wk. High Vol 30D Avg. 173,248 EV/Sales (Consensus): 7.5x 4.8x 3.2x
52 Wk. Low Shares Outstanding 38.8
Top Holders: % Out
HLM Management Co. 13.0%
CHP Management 13.0%
Trident Capital 12.6%
Kleiner Perkins Kaufield Byers 8.7%
Fidelity Management 5.7%
* VC ownership is roughly 52%
$15.32
Business 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 employers and health plans
TDOC serves. TDOC's telemedicine services revolve around providing on-demand
healthcare anytime, anywhere, 24/7/365, 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.
Investment Thesis:
We are initiating coverage on the shares of Teladoc with a Hold rating. In our view, the
company's dual monetization structure (PMPM fees plus Per Visit Fees) over monetize the
business relative to the general lack of awareness and underpenetration of the addressable
market opportunity. High consensus expectations around fundamental performance and
valuation provide additional reasons to be cautious. In our view, the long-term telemedicine
winner will focus leveraging attractive pricing to drive robust utilization / adoption. We would
potentially become constructive in the 2.5x to 3.0x FY17 EV/Revenue multiple range, roughly
$14.50 to $16.50 per share, all else equal.
Key Metrics ($millions, except per share values)
TDOC
$18.01
$35.42
Teladoc, Inc. (TDOC): HOLD
6
Teladoc: Company Overview
Source: Company reports
Leading Telemedicine Platform at Scale
Headquartered in Purchase, New York, Teladoc’s
primary focus is connecting supply & demand /
patients & physicians on behalf of employer, health
plan, and health system clients.
Teladoc provides on-demand physician consults
anywhere and anytime via Internet, video, and
telephone.
Clients (1) register, (2) request to see a physician,
(3) connect, (4) visit, and (5) gain resolution.
Top treatment indications, include: sinusitis, urinary
tract infection, pink eye, upper respiratory infection,
nasal congestion, Bronchitis, allergies, Influenza,
yeast infections, and cough & cold.
Growth areas, include: dermatology, anxiety,
smoking cessation, grief counseling, marriage
counseling, and sexual health.
Delivery Method: consults are 60%/40% call center
vs. web/mobile. Web/mobile consults are 70%/30%
telephonic vs. video.
Key Metrics
Members – 12.6 million-plus
Visits – 550,000-plus; 70% of market
Unique Visits – 404,000-plus
Monetization – $39/49 per visit; $0.50
PMPM; Phased $5 Increase in FY16
Utilization – 3.2% to 4.4%
Clients – 4,000+; 20+ Health Plans
Performance – 95% customer
satisfaction
Resolution – 92% Visit Resolution
Visits Per Day – 1,500+
Physician Response Time – <10 mins
7
Teladoc: Investment Rationale
Initiating coverage of Teladoc with a Hold rating.
Investment Hypothesis. We believe Teladoc’s dual-monetization model provides business model risk. Competitors and clients are
questioning the company’s dual-monetization model (PMPM + Per Visit). We believe the dual-monetization model is too mature
given the nascent state of telemedicine, and therefore see it as a hindrance to wide-spread usage and adoption.
Business Model Risk. We believe the long-term winner of telemedicine will be the vendor who focuses on driving robust adoption
via attractive pricing. We believe TDOCs monetization is a problem given the current stage of development for telemedicine.
Client and Competitor Behavior. Competitors are going to market around per visit fees only. Clients are starting to question the
value of PMPM, as they are now offering telemedicine service choice.
Revenue Quality. We believe the fact that PMPM revenues represent 80% of total revenues is concerning. Several entities,
including us, believe current monetization seems to increase the cost of telemedicine and limits the addressable market opportunity.
Utilization. Where are the patients? Telemedicine remains an off-the-grid service as utilization is only 1% to 2% industry-wide.
TDOC utilization is roughly 3.2% to 4.4% based on our 2015 estimates. Significantly improved utilization would potentially make us
more constructive, all else being equal.
Total Addressable Market. Management sees the market opportunity as 417 million visits consisting of ambulatory, outpatient, and
emergency room visits. We believe TDOC’s costs and pricing structure reduces the TAM significantly.
Muddled Reimbursement Landscape, and Texas. Private-pay parity exists in 26 states with 10 states in process. Medicare only
reimburses for chronic care management. Medicaid varies across 50 states. Hinders wide-spread awareness and adoption. Texas
and Teladoc are seemingly involved in endless litigation. TDOC won the latest round driven by its perceived cost savings. We see
this as a tenuous argument.
Valuation. Sell-Side price target expectations value TDOC between 6.0x and 7.8x EV multiple on 2017 revenue estimates. Given
our concerns, we believe shares become attractive in the 2.5x to 3.0x 2017 EV/Revenue multiple range. We believe investors are
fairly compensated for the associated risks at the 2.5x to 3.0x multiple range.
8
Teladoc: Investment Positives
Telemedicine Represents a Nascent Market: The market for telemedicine remains
undeveloped. The American Telemedicine Association (ATA) estimates 800,000 telemedicine visits
will occur in 2015. Teladoc estimates the company will serve roughly 70% of these visits. We
believe telemedicine benefits from a long growth and adoption runway.
Multiple Levers for Growth: An attractive aspect of Teladoc revolves around the several levers
the company can utilize to drive growth. Teladoc benefits from four primary growth levers,
including: membership growth, visit growth, account growth, and entering direct-to-consumer.
Additional growth levers revolve around expansion of specialties, expansion of products and
services, and expansion of clinical use cases.
Macro Tailwinds: The opportunity for telemedicine, and Teladoc, benefits from three major macro
drivers. First, telemedicine may help solve the physician access crisis. Secondly, telemedicine
may prove to be an effective tool to solve the looming physician shortage problem. Lastly, the holy
grail for telemedicine revolves around shifting low-acuity in-person visits to a more cost effective
channel.
Technology: Teladoc operates a third-generation technology platform that focuses on matching
supply and demand at scale. The company’s technological benefits revolve around the ability to
drive consult scale. Additionally, the company’s clinical guidelines ensure a high quality experience
for patient and provider. Management believes they have robust analytics and segmentation to
drive utilization. While we believe Teladoc benefits from strong technology, the company needs to
move from a more telephonic to video-centric telemedicine consult.
9
Debate 1: Can Teladoc Navigate Business Model Risk?
Debate: What is the better business model PMPM or
per visits? Is one model or another or both
sustainable LT? Competitors go-to-market around
the per-visit fee model. Select clients (Highmark and
Home Depot) are questioning the value of PMPM.
Management argues PMPM covers engagement
services and the underlying back-office technology.
Bullish View: The PMPM model represents more than
80% of revenues, which suggests sustainability. TDOC
benefits from greater scalability than competitors.
Our View: We believe TDOC suffers from over-
monetization driven by its dual-monetization structure,
which we see as unsustainable.
We believe ideal telemedicine model revolves around
PMPM with unlimited consults included (PMPM is
subscription). Given anemic utilization (570K out of
417M visits) and complete lack of awareness around
telemedicine, vendors’ primary focus should revolve
around driving robust adoption, rather than
monetization. The LT winner will focus on driving
adoption, which creates a sticky user-base. These
efforts should allow the pricing curve to evolve from
being elastic (NT) to inelastic (LT).
Analyzing TDOCs ROI Comparison
TDOC Comparison: Per Visit Vs. Copay
Source: Company documents, and Stifel estimates
Action
ER Visit $1,477 $1,477
Teladoc $40 $146
Urgent Care $163 $163
Teladoc $40 $146
Specialist $196 $196
Teladoc $40 $146
PCP Visit $131 $131
Teladoc $40 $91 Savings
$1,331 Savings
~$17 Savings
~$50 Savings
$146 - PMPM Makes TDOC $15 > Expensive
Average Cost Savings (Visits Only) Average Cost Savings (PMPM + Visits)
$1,437 Savings
$123 Savings
$156 Savings
$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.
Source: Company documents and Stifel estimates.
Notes: TDOC’s Beth Israel pricing allows consumers to opt for a monthly or annual subscription, which
carriers a full year term with no refund for early termination. Terms on a monthly basis are $39 per
consult plus a monthly fee over 12-months of either $2.99 (Individual) or $4.99 (Family). Terms on an
annual basis are $39 per consult plus an annual fee of either $29.99 (individual) or $49.99 (family).
Debate: The underlying investment presupposition of
telemedicine revolves around shifting low-acuity in-
person visits from high cost channels to the lower
cost telemedicine channel. Teladoc believes that it
drives robust utilization through its technology and
engagement services.
Bull View: Telemedicine remains underpenetrated /
under-utilized due to the nascent state of the industry.
Members and utilization / visits should exhibit strong
growth for several years.
Our view: Does the ability to scale matter if the
majority are unaware or not using the product? We
believe utilization rates / visits need to increase
substantially to validate the LT sustainability of the model.
While we recognize the strong traction associated with
TDOC’s PMPM fees, we believe long-term sustainability
is based upon actual utilization. In our view, the dual-
monetization model, as well as muddled reimbursement
environment further complicate adoption and usage
trends. Recently, TDOC delivered its 1 millionth consult;
we believe TDOC needs to generate significantly more
consults before it can sustain the monetization of its
member engagement and targeting services.
10
Debate 2: Revenue Quality – Where Are the Patient Visits?
TDOC Operating Dashboard
TDOC Utilization Trends
Source: Company reports, and Stifel estimates
Source: Company reports, and Stifel estimates
(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%
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
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
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
11
Debate 3: What Is Teladoc’s Total Addressable Market?
Debate: Is TDOC’s total addressable market
truly 417 million visits? Management believes
the company can serve roughly 33% of 417
million annual visits across primary care,
outpatient, and emergency departments. We
believe TDOC management views the TAM as
greater than $12B to $17B, and doubles when
behavioral health is included.
Bull View: The total addressable market is quite
large and remains underpenetrated relative to the
future opportunity. The visit opportunity revolves
around primary care, outpatient, and emergency
room visits.
Our view: We believe the TAM is more limited
than management and investors believe. Our
thinking stems from our concerns around model
sustainability and monetization. We believe per
visit fees makes TDOC a non-starter for patients in
certain channels. Furthermore, general lack of
awareness among consumers further illustrates
our belief that consumer adoption incentives must
improve.
TDOC TAM Summary Analysis
TDOC’s Truly Addressable Visit TAM
Source: Company documents, CDC, and Stifel estimates
Source: Company documents, CDC, and Stifel estimates
12
Debate 4: Will Texas Ever Become Excited About Telehealth/Telemedicine?
Debate: Can telemedicine gain parity and will the Texas
Medical Board ever fully embrace telemedicine?
Management believes it has an advantage, as it has won
several judgments against the Texas Medical Board. We
believe TDOC believes at some point Texas will be forced
to recognize the merits of its platform and telemedicine
in general.
Bull View: The Texas Medical Board represents a thorn in
the side of TDOC. State legislation will ultimately resolve
the issue. Expectations hold that private-pay parity will
continue to evolve in TDOC’s favor, and other
reimbursement structures will follow suit.
Our view: We expect the contentious relationship between
TDOC and the Texas Medical Board to continue. While TDOC
won an injunction in May based on being a low-cost provider,
we believe an argument can be made that TDOC is not a low
cost provider. We believe Texas supports the development of
stand-alone emergency rooms and urgent care centers.
Stand-alone ERs have grown at a 49% CAGR between 2010
and 2015. While seemingly more expensive, these entities
are growing in more affluent areas (likely high tech adopters
and first-mover communities) where consumers will pay for
quality and convenience. Until telemedicine becomes
mainstream, or costs to consumers associated with
telemedicine decline, utilization growth may be a challenge.
Texans Have an Affinity for Free Standing ERs
Source: Texas Tribune August 2015 and Stifel formatting
22 26
47
85
136
162
2010 2011 2012 2013 2014 2015
Growth of Freestanding ERs in Texas
TDOC Comparison: Per Visit Vs. Copay
$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.
Source: Company documents and Stifel estimates.
Notes: TDOC’s Beth Israel pricing allows consumers to opt for a monthly or annual subscription, which
carriers a full year term with no refund for early termination. Terms on a monthly basis are $39 per
consult plus a monthly fee over 12-months of either $2.99 (Individual) or $4.99 (Family). Terms on an
annual basis are $39 per consult plus an annual fee of either $29.99 (individual) or $49.99 (family).
13
Teladoc: Valuation Methodology
Valuation: We believe the inherent
risks and uncertainties associated
with the TDOC business model
offsets the attractiveness of the
perceived growth profile. We believe
athenahealth (ATHN, $158.23, Buy)
and Medidata Solutions (MDSO,
$47.30, Buy) represent the valuation
starting point. Currently, ATHN trades
at 5.1x our 2017 revenue estimate.
MDSO currently trades at roughly
4.3x our FY17 revenue estimate.
Given our concerns around
monetization and utilization, we are
unwilling to support a premium
valuation for TDOC, despite what
some may view as an attractive
growth profile. We believe TDOC’s
current model does not fit well with
our current 2016 outlook. We believe
investors should take a cautious
stance with TDOC shares.
Source: Company documents, FactSet, and Stifel estimates. Per share prices are as of 1/4/2015 close.
FY15E FY16E FY17E
Price $17.99 $17.99 $17.99 $14.23 $16.43 $18.62 $20.82
Shares 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
Cash $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
EV $565.5 $565.5 $565.5 $421.4 $505.6 $589.9 $674.2
Revenues $76.3 $118.6 $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
FY17 Stifel Valuation Range
Stifel TDOC Valuation Analysis
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
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 comp universe
Teladoc Comparative Valuation
14
Teladoc: Competitors
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 with per visit fee monetization only. Medical and pediatrics visits cost $40 each. 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.
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 $49 per visit and employs over 2,300 Board Certified physicians
with an average of 15 years of experience. MDLive offers online therapy and psychiatry services through its subsidiary Breakthrough.
We note that MDLive also operates a per visit fee model and foregoes the PMPM model.
Chiron Health. Chiron utilizes extensive knowledge of telemedicine regulation and reimbursement to ensure physicians are reimbursed
for providing telemedicine services. Similar to athenahealth, Chiron relies on a telemedicine focused rules engine that incorporates and
integrates state reimbursement mandates and payer-specific nuances in order to guarantee reimbursement. The company offers at risk
pricing, as Chiron guarantees reimbursement or else they will reimburse the doctor (CPT 99213 and 99214). The business model
utilizes a take rate of roughly 0.5% of telemedicine collections generated. Based on Chiron’s website, the company can help physicians
increase their telemedicine collections by roughly 3% to 4%.
Urgent Care Centers and Stand-alone Emergency Rooms. While the majority of pure-play telemedicine vendors provide data that
their services are cheaper than urgent care or emergency room visits, consumers continue to utilize these seemingly more expensive
services. The first major issue revolves around comfort with using the telephone or video chats for medical consultations. We believe a
significant adoption curve exists among consumers and believe several visits are needed to drive natural comfort with telemedicine.
15
Teladoc: Model
Teladoc, Inc. (TDOC)Statement of Income($ in 000s, except per share) FY FYE FYE FYE 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 E
FY 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) 171 162 188
Tax 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 outstanding
Basic 1,855 19,210 36,485 36,925 1,424 1,975 2,060 1,963 2,162 2,370 36,100 36,210
Diluted 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)$
Net Income (Loss) (17,037) (58,393) (42,313) (16,635) (2,321) (3,200) (4,529) (6,987) (12,703) (17,064) (13,246) (15,380)
Interest Expense (Net) 1,499 2,205 2,022 2,022 54 349 510 586 568 642 489 506
Depreciation and Amortization 2,320 4,873 6,992 8,748 414 554 650 702 903 923 1,491 1,556
Stock-Based Compensation 904 2,742 3,262 3,792 147 119 105 533 811 567 718 646
Tax Provision / (Benefit) 388 63 (1,230) (1,600) 72 (7) 162 161 (458) 171 162 188
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 Revenues
Gross 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 Rate
Net 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 EBITDA
Operating Income
Pretax Income
Net Income
Diluted EPS
Guidance from Company
Total Revenues
Adjusted Diluted EPS
Adjusted Diluted EPS (Second Revision)
Adjusted Diluted EPS (Third Revision)
Steve Rubis (214) 706 - 9451
Updated: January 4, 2016
Source: Company reports and Stifel estimates
16
Teladoc: Ownership
Market Report
Holder Position Value % Portfolio % O/S Date City Region
1 HLM Management Co. LLC 4,980,468 91,192,369 12.95 07/07/2015 Boston Boston/MA Metro
2 CHP Management, Inc. 4,980,468 91,192,369 12.95 07/07/2015 Princeton Princeton/Trenton Metro
3 Trident Capital, Inc. 4,852,226 88,844,258 12.62 07/07/2015 Palo Alto San Francisco/CA Metro
4 Kleiner Perkins Caufield & Byers LLC 3,337,086 61,102,045 8.68 09/30/2015 Menlo Park San Francisco/CA Metro
5 Fidelity Management & Research Co. 2,188,379 40,069,219 0.01 5.69 09/30/2015 Boston Boston/MA Metro
6 Icon Ventures LLC 1,972,560 36,117,574 5.13 07/01/2015 Palo Alto San Francisco/CA Metro
7 Jennison Associates LLC 1,423,322 26,061,026 0.02 3.70 09/30/2015 New York New York City/NY Metro
8 Citadel Advisors LLC 973,988 17,833,720 0.03 2.53 09/30/2015 Chicago Chicago/IL Metro
9 BlueMountain Capital Management LLC 947,466 17,348,102 0.38 2.46 09/30/2015 New York New York City/NY Metro
10 GOREVIC JASON N 927,258 16,978,094 2.41 07/07/2015
11 Wellington Management Co. LLP 862,755 15,797,044 0.00 2.24 09/30/2015 Boston Boston/MA Metro
12 Wells Capital Management, Inc. 787,782 14,424,288 0.02 2.05 09/30/2015 San Francisco San Francisco/CA Metro
13 BlackRock Advisors LLC 695,665 12,737,626 0.01 1.81 09/30/2015 Wilmington Wilmington/DE Metro
14 Marble Arch Investments LP 685,000 12,542,350 0.96 1.78 09/30/2015 New York New York City/NY Metro
15 The Vanguard Group, Inc. 546,035 9,997,901 0.00 1.42 09/30/2015 Malvern Philadelphia/PA Metro
16 JHL Capital Group LLC 540,000 9,887,400 0.99 1.40 09/30/2015 Chicago Chicago/IL Metro
17 Brown Advisory LLC 493,509 9,036,150 0.03 1.28 09/30/2015 Baltimore Baltimore/Wash DC Metro
18 BlackRock Fund Advisors 454,060 8,313,839 0.00 1.18 09/30/2015 San Francisco San Francisco/CA Metro
19 Sectoral Asset Management, Inc. 417,700 7,648,087 0.29 1.09 09/30/2015 Montreal Montreal/Quebec Metro
20 Peregrine Capital Management, Inc. 409,360 7,495,382 0.25 1.07 09/30/2015 Minneapolis Minneapolis/MN Metro
21 BlackRock Investment Management (UK) Ltd. 365,827 6,698,292 0.00 0.95 09/30/2015 London London/UK Metro
22 William Blair & Co. LLC (Investment Management) 348,360 6,378,472 0.03 0.91 09/30/2015 Chicago Chicago/IL Metro
23 EverPoint Asset Management LLC 315,000 5,767,650 0.16 0.82 09/30/2015 Stamford New York City/NY Metro
24 Elk Creek Partners LLC 250,800 4,592,148 0.35 0.65 09/30/2015 Denver Denver/CO Metro
25 Highland Capital Management Fund Advisors LP 240,000 4,394,400 0.20 0.62 09/30/2015 Dallas Dallas/Ft Worth TX Metro
26 Highland Capital Management LP 240,000 4,394,400 1.29 0.62 09/30/2015 Dallas Dallas/Ft Worth TX Metro
27 HIRSCHHORN MARK J 235,867 4,318,725 0.61 07/07/2015
28 T. Rowe Price Associates, Inc. 230,550 4,221,371 0.00 0.60 09/30/2015 Baltimore Baltimore/Wash DC Metro
29 OppenheimerFunds, Inc. 228,850 4,190,244 0.00 0.60 09/30/2015 New York New York City/NY Metro
30 Fred Alger Management, Inc. 226,968 4,155,784 0.02 0.59 09/30/2015 New York New York City/NY Metro
Source: FactSet
17
Disclosures
Important Disclosures and Certifications
I, Steven A. Rubis, certify that the views expressed in this research report accurately reflect my personal
views about 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 research report. Our European Policy for Managing Research Conflicts of Interest is
available at www.stifel.com.
For a price chart with our ratings and any applicable target price changes for ATHN go to
http://sf.bluematrix.com/bluematrix/Disclosure?ticker=ATHN
18
Disclosures
For a price chart with our ratings and any applicable target price changes for MDSO go to
http://sf.bluematrix.com/bluematrix/Disclosure?ticker=MDSO
19
Disclosures
For a price chart with our ratings and any applicable target price changes for TDOC go to
http://sf.bluematrix.com/bluematrix/Disclosure?ticker=TDOC
20
Disclosures Continued
The rating and target price history for athenahealth, Inc. and Medidata Solutions, Inc. and its securities prior to February 25, 2015, on the above
price chart reflects the research analyst's views under a different rating system than currently 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 athenahealth, Inc., Medidata Solutions, Inc. and Teladoc, Inc..
The equity research analyst(s) responsible for the preparation of this report receive(s) compensation based on various factors, 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 percentage price change plus dividend
yield.
HOLD -We expect a total return between -5% and 10% over the next 12 months with total return equal to the percentage 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 price change plus dividend yield.
Occasionally, we use the ancillary rating of SUSPENDED (SU) to indicate a long-term suspension in rating and/or target price, and/or coverage due
to applicable regulations or Stifel policies. SUSPENDED indicates the analyst is unable to determine a “reasonable basis” for rating/target price or
estimates due to lack of publicly available information or the inability to quantify the publicly available information provided by the company and it is
unknown when the outlook 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% of the companies whose shares
are rated Buy, Hold, Sell and Suspended, respectively.
21
Disclosures Continued
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