UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30,~~, 2019~~ 2020

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-37477

TELADOC HEALTH, INC.

(Exact name of registrant as specified in its charter)

Delaware		04-3705970
(State of incorporation)		(I.R.S. Employer Identification No.)

2 Manhattanville Road, Suite 203
Purchase, New York		10577
(Address of principal executive office)		(Zip code)

(203) 635-2002

(Registrant’s telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	TDOC	The New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	⌧	Accelerated filer	◻	Non-accelerated filer	◻	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ⌧

As of ~~October~~July 24, ~~2019,~~2020, the Registrant had ~~72,382,343~~81,228,458 shares of Common Stock outstanding.

Table of Contents

TELADOC HEALTH, INC.

QUARTERLY REPORT ON FORM 10-Q

For the period ended ~~September~~June 30,~~, 2019~~ 2020

TABLE OF CONTENTS

		Page Number

PART I	Financial Information	2
Item 1.	Financial Statements	2
	Consolidated Balance Sheets as of ~~September~~June 30, ~~2019~~2020 (unaudited) and December 31, ~~2018~~2019	2
	Consolidated Statements of Operations (unaudited) for the quarters and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	3
	Consolidated Statements of Comprehensive Loss (unaudited) for the quarters and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	4
	Consolidated Statements of Stockholders’ Equity (unaudited) for the quarters and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	5
	Consolidated Statements of Cash Flows (unaudited) for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	6
	Notes to Unaudited Consolidated Financial Statements	87
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2423
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3533
Item 4.	Controls and Procedures	3633
PART II	Other Information	3735
Item 1.	Legal Proceedings	3735
Item 1A.	Risk Factors	37
~~Item 5.~~	~~Other Information~~	3735
Item 6.	Exhibits	3837
Exhibit Index		3837
Signatures		4039

Table of Contents

PART I

FINANCIAL INFORMATION

ITEM 1. Financial Statements

TELADOC HEALTH, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data, unaudited)


	September 30,		December 31,		June 30,		December 31,
	2019		2018		2020		2019

Assets
Current assets:
Cash and cash equivalents	$	475,242	$	423,989	$	1,308,843	$	514,353
Short-term investments		15,633		54,545		2,932		2,711
Accounts receivable, net of allowance of $3,287 and $3,382, respectively		53,669		43,571
Accounts receivable, net of allowance of $5,113 and $3,787, respectively						76,902		56,948
Prepaid expenses and other current assets		13,416		10,631		14,433		13,990
Total current assets		557,960		532,736		1,403,110		588,002
Property and equipment, net		10,021		10,148		9,606		10,296
Goodwill		737,647		737,197		742,314		746,079
Intangible assets, net		228,838		247,394		213,474		225,453
Operating lease - right-of-use assets		27,596		—		30,440		26,452
Other assets		6,367		1,401		19,884		6,545
Total assets	$	1,568,429	$	1,528,876	$	2,418,828	$	1,602,827
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	6,068	$	7,769	$	10,816	$	9,075
Accrued expenses and other current liabilities		53,822		26,801		75,153		46,905
Accrued compensation		25,312		27,869		37,579		34,201
Total current liabilities		85,202		62,439		123,548		90,181
Other liabilities		7,156		6,191		5,257		11,539
Operating lease liabilities, net of current portion		25,853		—		27,940		24,994
Deferred taxes		22,720		32,444		18,976		21,678
Convertible senior notes, net		433,760		414,683		948,178		440,410
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value; 150,000,000 shares authorized as of September 30, 2019 and December 31, 2018; 72,356,849 shares and 70,516,249 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively		72		70
Common stock, $0.001 par value; 150,000,000 shares authorized as of June 30, 2020 and December 31, 2019; 79,099,433 shares and 72,761,941 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively						79		73
Additional paid-in capital		1,510,205		1,434,780		1,879,573		1,538,716
Accumulated deficit		(488,481)		(408,661)		(562,810)		(507,525)
Accumulated other comprehensive loss		(28,058)		(13,070)		(21,913)		(17,239)
Total stockholders’ equity		993,738		1,013,119		1,294,929		1,014,025
Total liabilities and stockholders’ equity	$	1,568,429	$	1,528,876	$	2,418,828	$	1,602,827

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

TELADOC HEALTH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data, unaudited)


	Quarter Ended September 30,				Nine Months Ended September 30,				Quarter Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Revenue	$	137,969	$	110,962	$	396,818	$	295,166	$	241,030	$	130,276	$	421,829	$	258,849
Expenses:
Cost of revenue		42,799		34,167		129,110		88,707
Cost of revenue (exclusive of depreciation and amortization shown separately below)										90,780		41,634		163,162		86,311
Operating expenses:
Advertising and marketing		31,321		21,668		84,341		61,554		47,578		26,616		80,093		53,020
Sales		16,120		16,303		48,164		44,645		18,687		15,832		36,627		32,044
Technology and development		15,746		13,577		48,398		40,829		23,029		16,665		42,286		32,652
Legal and regulatory		1,634		807		5,239		2,491		2,232		2,019		3,454		3,605
Acquisition and integration related costs		1,995		1,588		4,143		8,957		1,627		1,136		5,291		2,148
Gain on sale		—		(1,430)		—		(5,500)
General and administrative		38,681		30,314		113,212		80,455		54,383		38,549		99,503		74,531
Depreciation and amortization		9,617		9,746		29,065		26,045		9,893		9,848		19,603		19,448
Total expenses		157,913		126,740		461,672		348,183		248,209		152,299		450,019		303,759
Loss from operations		(19,944)		(15,778)		(64,854)		(53,017)		(7,179)		(22,023)		(28,190)		(44,910)
Loss on extinguishment of debt										7,751		0		7,751		0
Interest expense, net		7,700		7,666		21,432		19,449		13,151		7,211		22,454		13,732
Net loss before taxes		(27,644)		(23,444)		(86,286)		(72,466)		(28,081)		(29,234)		(58,395)		(58,642)
Income tax benefit		(7,298)		(180)		(6,466)		(261)
Income tax (benefit) expense										(2,399)		90		(3,110)		832
Net loss	$	(20,346)	$	(23,264)	$	(79,820)	$	(72,205)	$	(25,682)	$	(29,324)	$	(55,285)	$	(59,474)

Net loss per share, basic and diluted	$	(0.28)	$	(0.34)	$	(1.11)	$	(1.12)	$	(0.34)	$	(0.41)	$	(0.74)	$	(0.83)

Weighted-average shares used to compute basic and diluted net loss per share		72,151,094		68,247,655		71,601,790		64,363,943		76,512,870		71,721,246		74,919,194		71,322,586

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

TELADOC HEALTH, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, unaudited)


	Quarter Ended September 30,				Nine Months Ended September 30,				Quarter Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Net loss	$	(20,346)	$	(23,264)	$	(79,820)	$	(72,205)	$	(25,682)	$	(29,324)	$	(55,285)	$	(59,474)
Other comprehensive loss, net of tax:
Net change in unrealized (loss) gains on available-for-sale securities		(23)		11		37		52
Net change in unrealized gains on available-for-sale securities										0		5		0		60
Cumulative translation adjustment		(15,493)		(1,840)		(15,025)		(8,498)		12,880		4,311		(4,674)		468
Other comprehensive loss, net of tax		(15,516)		(1,829)		(14,988)		(8,446)		12,880		4,316		(4,674)		528
Comprehensive loss	$	(35,862)	$	(25,093)	$	(94,808)	$	(80,651)	$	(12,802)	$	(25,008)	$	(59,959)	$	(58,946)

See accompanying notes to unaudited consolidated financial statements

Table of Contents

TELADOC HEALTH, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data, unaudited)


									Accumulated
					Additional				Other		Total
	Common Stock				Paid-In		Accumulated		Comprehensive		Stockholders’
	Shares		Amount		Capital		Deficit		Loss		Equity
Balance of December 31, 2019	72,761,941		$	73	$	1,538,716	$	(507,525)	$	(17,239)	$	1,014,025
Exercise of stock options	671,279			0		14,830		0		0		14,830
Issuance of common stock upon vesting of restricted stock units	642,411			1		(1)		0		0		0
Issuance of common stock for 2022 Notes	655			0		58		0		0		58
Stock-based compensation	0			0		18,421		0		0		18,421
Other comprehensive loss, net of tax	0			0		0		0		(17,554)		(17,554)
Net loss	0			0		0		(29,603)		0		(29,603)
Balance as of March 31, 2020	74,076,286			74		1,572,024		(537,128)		(34,793)		1,000,177
Exercise of stock options	927,684			1		18,682		0		0		18,683
Issuance of common stock upon vesting of restricted stock units	109,768			0		(0)		0		0		0
Issuance of stock under employee stock purchase plan	35,901			0		2,473		0		0		2,473
Issuance of common stock for 2022 Notes	3,949,794	��		4		693,802		0		0		693,806
Equity portion of extinguishment of 2022 Convertible Notes	0			0		(715,151)		0		0		(715,151)
Equity component of 2027 Notes, net of issuance costs	0			0		285,601		0		0		285,601
Stock-based compensation	0			0		22,142		0		0		22,142
Other comprehensive loss, net of tax	0			0		0		0		12,880		12,880
Net loss	0			0		0		(25,682)		0		(25,682)
Balance as of June 30, 2020	79,099,433		$	79	$	1,879,573	$	(562,810)	$	(21,913)	$	1,294,929

Balance as of December 31, 2018	70,516,249		$	70	$	1,434,780	$	(408,661)	$	(13,070)	$	1,013,119
Exercise of stock options	564,102			1		8,853		0		0		8,854
Issuance of common stock upon vesting of restricted stock units	383,060			0		0		0		0		0
Stock-based compensation	0			0		13,523		0		0		13,523
Other comprehensive loss, net of tax	0			0		0		0		(3,788)		(3,788)
Net loss	0			0		0		(30,150)		0		(30,150)
Balance as of March 31, 2019	71,463,411			71		1,457,156		(438,811)		(16,858)		1,001,558
Exercise of stock options	350,219			1		6,846		0		0		6,847
Issuance of restricted stock units	85,035			0		0		0		0		0
Issuance of stock under employee stock purchase plan	35,716			0		1,875		0		0		1,875
Stock-based compensation	0			0		17,368		0		0		17,368
Other comprehensive loss, net of tax	0			0		0		0		4,316		4,316
Net loss	0			0		0		(29,324)		0		(29,324)
Balance as of June 30, 2019	71,934,381		$	72	$	1,483,245	$	(468,135)	$	(12,542)	$	1,002,640

See accompanying notes to unaudited consolidated financial statements.

Accumulated


Additional



Other

Total

Common Stock

Paid-In

Accumulated

Comprehensive

Stockholders’


Shares

Amount

Capital

Deficit

(Loss) Income

Equity

Balance as of December 31, 2018

70,516,249

$
70

$
1,434,780

$
(408,661)

$
(13,070)

$
1,013,119

Exercise of stock options

564,102

1

8,853

—

—

8,854

Issuance of restricted stock units

383,060

—

—

—

—

—

Stock-based compensation

—

—

13,523

—

—

13,523

Other comprehensive loss, net of tax

—

—

—

—

(3,788)

(3,788)

Net loss

—

—

—

(30,150)

—

(30,150)

Balance as of March 31, 2019

71,463,411

71

1,457,156

(438,811)

(16,858)

1,001,558

Exercise of stock options

350,219

1

6,846

—

—

6,847

Issuance of restricted stock units

85,035

—

—

—

—

—

Issuance of stock under employee stock purchase plan

35,716

—

1,875

—

—

1,875

Stock-based compensation

—

—

17,368

—

—

17,368

Other comprehensive loss, net of tax

—

—

—

—

4,316

4,316

Net loss

—

—

—

(29,324)

—

(29,324)

Balance as of June 30, 2019

71,934,381

72

1,483,245

(468,135)

(12,542)

1,002,640

Exercise of stock options

356,691

—

9,119

—

—

9,119

Issuance of restricted stock units

65,622

—

—

—

—

—

Issuance of common stock for Convertible Notes

155

—

8

—

—

8

Stock-based compensation

—

—

17,833

—

—

17,833

Other comprehensive loss, net of tax

—

—

—

—

(15,516)

(15,516)

Net loss

—

—

—

(20,346)

—

(20,346)

Balance as of September 30, 2019

72,356,849

$
72

$
1,510,205

$
(488,481)

$
(28,058)

$
993,738

Balance as of December 31, 2017

61,534,101

$
61

$
866,330

$
(311,577)

$
4,089

$
558,903

Exercise of stock options

651,010

1

8,642

—

—

8,643

Issuance of restricted stock units

95,094

—

—

—

—

—

Stock-based compensation

—

—

7,832

—

—

7,832

Other comprehensive loss, net of tax

—

—

—

—

(648)

(648)

Net loss

—

—

—

(23,862)

—

(23,862)

Balance as of March 31, 2018

62,280,205

62

882,804

(335,439)

3,441

550,868

Exercise of stock options

527,799

—

7,122

—

—

7,122

Equity component of Convertible Senior Notes, net of issuance costs

—

—

91,392

—

—

91,392

Issuance of restricted stock units

69,938

—

—

—

—

—

Issuance of stock under employee stock purchase plan

56,453

—

1,423

—

—

1,423

Issuance of stock in acquisition

1,344,387

2

68,562

—

—

68,564

Stock-based compensation

—

—

11,059

—

—

11,059

Other comprehensive loss, net of tax

—

—

—

—

(5,969)

(5,969)

Net loss

—

—

—

(25,079)

—

(25,079)

Balance as of June 30, 2018

64,278,782

64

1,062,362

(360,518)

(2,528)

699,380

Exercise of stock options

643,310

1

10,432

—

—

10,433

Follow-On Offerings

5,000,000

5

330,851

—

—

330,856

Issuance of restricted stock units

112,759

—

—

—

—

—

Stock-based compensation

—

—

12,195

—

—

12,195

Other comprehensive loss, net of tax

—

—

—

—

(1,829)

(1,829)

Net loss

—

—

—

(23,264)

—

(23,264)

Balance as of September 30, 2018

70,034,851

$
70

$
1,415,840

$
(383,782)

$
(4,357)

$
1,027,771

Table of Contents

~~See accompanying notes to unaudited consolidated financial statements.~~

TELADOC HEALTH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)


	Nine Months Ended September 30,				Six Months Ended June 30,
	2019		2018		2020		2019
Cash flows provided by (used in) operating activities:
Cash flows used in operating activities:
Net loss	$	(79,820)	$	(72,205)	$	(55,285)	$	(59,474)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		33,860		26,045		22,655		22,443
Allowance for doubtful accounts		1,717		1,535		2,290		1,014
Stock-based compensation		48,245		31,086		40,243		30,891
Deferred income taxes		(10,288)		(1,907)		(3,457)		(1,472)
Accretion of interest		19,422		13,593		16,576		12,347
Gain on sale		—		(5,500)
Loss on extinguishment of debt						7,751		0
Changes in operating assets and liabilities:
Accounts receivable		(12,386)		(7,535)		(24,773)		(7,237)
Prepaid expenses and other current assets		(2,219)		(1,656)		1,595		1,251
Other assets		73		(327)		36		74
Accounts payable		(1,976)		(357)		1,844		374
Accrued expenses and other current liabilities		21,012		7,561		25,208		10,358
Accrued compensation		(1,813)		1,991		(1,818)		(9,133)
Operating lease liabilities		(1,481)		—		(2,788)		(794)
Other liabilities		(2,599)		340		(847)		(2,385)
Net cash provided by (used in) operating activities		11,747		(7,336)
Cash flows provided by (used in) investing activities:
Net cash provided by (used) in operating activities						29,230		(1,743)
Cash flows (used in) provided by investing activities:
Purchase of property and equipment		(2,847)		(2,732)		(1,641)		(1,248)
Purchase of internal-use software		(4,658)		(2,758)		(6,449)		(2,975)
Purchase of marketable securities		—		(12,141)
Proceeds from marketable securities		39,165		79,470		0		22,695
Sale of assets		10		5,500		0		7
Investment in securities		(5,000)		—		0		(5,000)
Acquisition of business, net of cash acquired		(11,204)		(282,487)
Net cash provided by (used in) investing activities		15,466		(215,148)
Pre-funding associated with the pending acquisition						(13,500)		(11,207)
Net cash (used in) provided by investing activities						(21,590)		2,272
Cash flows provided by financing activities:
Net proceeds from the exercise of stock options		24,820		26,198		33,513		15,701
Proceeds from issuance of convertible notes		—		279,147
Proceeds from issuance of common stock		—		330,856
Proceeds from issuance of 2027 Notes						1,000,000		0
Issuance costs of 2027 Notes						(24,070)		0
Contingent consideration fair value adjustment						0		210
Repurchase of 2022 Notes						(228,130)		0
Proceeds from employee stock purchase plan		1,875		1,423		2,473		1,875
Cash (paid) received for withholding taxes on stock-based compensation, net		(1,642)		539
Cash received (paid) for withholding taxes on stock-based compensation, net						4,492		(1,886)
Net cash provided by financing activities		25,053		638,163		788,278		15,900
Net increase in cash and cash equivalents		52,266		415,679		795,918		16,429
Foreign exchange difference		(1,013)		(942)		(1,428)		25
Cash and cash equivalents at beginning of the period		423,989		42,817		514,353		423,989
Cash and cash equivalents at end of the period	$	475,242	$	457,554	$	1,308,843	$	440,443

Income taxes paid	$	846	$	238	$	59	$	309

Interest paid	$	6,112	$	4,125	$	5,609	$	6,102

~~Table of Contents~~

See accompanying notes to unaudited consolidated financial statements.

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Note 1. Organization and Description of Business

Teladoc, Inc. was incorporated in the State of Texas in June 2002 and changed its state of incorporation to the State of Delaware in October 2008. Effective August 10, 2018, Teladoc, Inc. changed its corporate name to Teladoc Health, Inc. Unless the context otherwise requires, Teladoc Health, Inc., together with its subsidiaries, is referred to herein as “Teladoc Health” or the “Company”. The Company’s principal executive office is located in Purchase, New York. Teladoc Health is the global leader in providing virtual healthcare services with a focus on high quality, lower costs, and improved outcomes around the world.

On July 26, 2018, Teladoc Health completed a follow-on public offering (the “July Offering”) in which the Company issued and sold 5,000,000 shares of common stock, at an issuance price of $66.28 per share. The Company received net proceeds of $330.9 million after deducting offering expenses of $0.5 million.

~~On May 31, 2018,~~1, 2020, the Company completed the acquisition of ~~Advance Medical-Health Care Management Services, S.A. (“Advance Medical”)~~InTouch Technologies, Inc., athe leading ~~global virtual healthcare provider.~~provider of enterprise telehealth solutions for hospitals and health systems. See Note ~~4 “Business Acquisition” for additional information.~~

On May 8, 2018, the Company issued, at par value, $287.5 million aggregate principal amount of 1.375% convertible senior notes due 2025 (the “2025 Notes”). The 2025 Notes bear cash interest at a rate of 1.375% per year, payable semi-annually in arrears on May 15 and November 15 of each year. The 2025 Notes will mature on May 15, 2025. The net proceeds to the Company from the offering were $279.1 million after deducting offering costs of approximately $8.4 million.“Subsequent Events”.

Note 2. Basis of Presentation and Principles of Consolidation

Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals and adjustments) necessary to present fairly the financial position, results of operations and cash flows of the Company at the dates and for the periods indicated. The interim results for the quarter and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 are not necessarily indicative of results for the full ~~2019~~2020 calendar year or any other future interim periods. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Form 10-K for the year ended December 31, ~~2018.~~2019

The unaudited consolidated financial statements include the results of Teladoc Health, its wholly owned subsidiaries, as well as 2 professional associations, 1411 professional corporations and a service corporation (the “Association”).

Teladoc Physicians, P.A. became Teladoc Health Medical Group, P.A. on January 1, 2020. Teladoc Health Medical Group, P.A. is party to several services agreements by and among it and the professional corporations pursuant to which each professional corporation provides services to Teladoc ~~Physicians,~~Health Medical Group, P.A. Each professional corporation is established pursuant to the requirements of its respective domestic jurisdiction governing the corporate practice of medicine.

The Company holds a variable interest in the Association which contracts with physicians and other health professionals in order to provide services to Teladoc Health. The Association is considered a variable interest entity (“VIE”) since it does not have sufficient equity to finance its activities without additional subordinated financial support. An enterprise having a controlling financial interest in a VIE, must consolidate the VIE if it has both power and benefits—that is, it has (1) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance (power) and (2) the obligation to absorb losses of the VIE that potentially could be significant to the VIE or the right to receive benefits from the VIE that potentially could be significant to the VIE (benefits). The Company has the power and rights to control all activities of the Association and funds and absorbs all losses of the VIE.

Total revenue and net (loss) income for the VIE were ~~$17.2~~$57.7 million and ~~$0.2~~$0.9 million, respectively, for the quarter ended ~~September~~June 30, ~~2019~~2020 and ~~$11.6~~$17.4 million and ~~$(4.5)~~$(0.2) million, respectively, for the quarter ended ~~September~~June 30, ~~2018.~~2019. Total revenue and net (loss) income for the VIE were ~~$55.7~~$100.2 million and ~~$(0.1)~~$0.8 million, respectively, for the

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~~nine~~ six months ended ~~September~~June 30, ~~2019~~2020 and ~~$40.6~~$38.5 million and ~~$(2.5)~~$(0.3) million, respectively, for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The VIE’s total assets were ~~$13.5~~$22.9 million and ~~$9.8~~$13.6 million at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Total liabilities for the VIE were ~~$48.1~~$59.8 million and ~~$44.3~~$51.3 million at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The VIE’s total stockholders’ deficit was ~~$34.6~~$36.9 million and ~~$34.5~~$37.7 million at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

The functional currency for each of the Company’s foreign subsidiaries is the local currency. All assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the exchange rate on the balance sheet date. Revenues and expenses are translated at the weighted average exchange rate during the period. Cumulative

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translation gains or losses are included in stockholders’ equity as a component of accumulated other comprehensive income (loss).

The Company operates in a single reportable segment – health services. Revenue earned by foreign operations outside of the United States were ~~$27.4~~$30.5 million and ~~$24.5~~$26.1 million for the quarters ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Revenue earned by foreign operations outside of the United States were ~~$78.7~~$59.9 million and ~~$50.4~~$51.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Long-lived assets from foreign operations totaled ~~$1.7~~$1.6 million and ~~$1.5~~$2.2 million as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

All intercompany transactions and balances have been eliminated.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Recently Issued Accounting Pronouncements

In ~~June 2018, the~~December 2019, FASB issued ASU ~~No. 2018-07, Compensation - Stock Compensation~~2019-12 Simplification of Income Taxes (Topic ~~718): Improvements~~740). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to ~~Nonemployee Share-Based Payment Accounting. These~~the general principles in Topic 740. The amendments ~~expand the scope~~also improve consistent application of and simplify GAAP for other areas of Topic ~~718, Compensation - Stock Compensation, which currently only includes share-based payments to employees, to include share-based payments issued to nonemployees for goods or services~~740 by clarifying and ~~the accounting is substantially aligned. The~~amending existing guidance. ASU ~~supersedes Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. This standard~~2019-12 is effective for public companies for annual periods beginning after December 15, ~~2018,~~2020, including interim periods within those fiscal ~~years, with~~years. We have early ~~adoption permitted as long as~~adopted ASU ~~No. 2014-09 has been adopted by the Company. The Company has elected to early adopt this standard as of July 1, 2018 and the adoption of ASU No. 2018-07 had no impact~~2019-12 on ~~the Company’s~~our consolidated financial ~~statements.~~

~~In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 outlines a comprehensive lease accounting model~~statements and supersedes the current lease guidance. The new guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. The Company adopted this standard ondisclosures effective January 1, ~~2019 utilizing~~2020, with no material impact to the modified retrospective approach and reflecting a cumulative effect adjustment at that time. Under this adoption method, prior periods are presented in accordance with the previous guidance in ASC 840, Leases.

In adopting the new standard, the Company elected to utilize the available package of practical expedients permitted under the transition guidance within the new standard, which does not require the reassessment of the following: i) whether existing or expired arrangements are or contain a lease, ii) the lease classification of existing or expired leases, and iii) whether previous initial direct costs would qualify for capitalization under the new lease standard. Additionally, the Company made an accounting policy election to keep leases with a term of 12 months or less off of its balance sheet. As part of its adoption, the Company underwent a process of assessing the lease population and determining the impact of the adoption of this standard which resulted in the recognition of operating lease liabilities of and right-of-use assets of approximately $33 million on the Company’s balance sheet relating to its leases on the consolidated financial statements. The Company determined the most significant impact was the recognition of right of use assets and lease liabilities for operating leases on the consolidated balance sheets and there was no impact on the consolidated statements of operations or consolidated statements of cash flows. See Note 7 “Leases”, for further information.

In January 2017, the FASB issued ASU 2017-04, Goodwill Simplifications (Topic 350). ASU 2017-04 simplifies the test for goodwill impairment. The new guidance eliminates Step 2 from the goodwill impairment test as currently prescribed in the U.S. generally accepted accounting principle. This ASU is the result of the FASB project focused on simplifications to accounting for goodwill. The new guidance ~~will be~~was effective for ~~the Company starting in~~ the first quarter of ~~fiscal 2020. Early adoption is permitted~~2020 and was adopted in ~~any annual or interim period. The Company is currently in~~the quarter-ended December 31, 2019.

~~Table~~In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of ~~Contents~~

Credit Losses on Financial Instruments. ASU 2016-13 requires an entity to utilize a new impairment model known as the ~~process of evaluating~~current expected credit loss ("CECL") model to estimate its lifetime "expected credit loss" and record an allowance that, when deducted from the ~~impact~~amortized cost basis of the ~~adoption of this standard~~financial asset, presents the net amount expected to be collected on the ~~consolidated~~financial asset. The CECL model is expected to result in more timely recognition of credit losses. ASU 2016-13 requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. ASU 2016- 13 is effective for public companies for annual periods beginning after December 13, 2019, including interim periods within those fiscal years. The standard applies as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The guidance was effective and adopted in the quarter ended March 31, 2020, with no material impact to the financial statements.

Summary of Significant Accounting Policies

Effective January 1, 2019, the Company adopted ASC 842, using the required modified retrospective approach and utilizing the effective date as its date of initial application, for which prior periods are presented in accordance with the previous guidance in ASC 840, Leases.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Most leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of 12 months or less. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. However, certain adjustments to the right-of-use asset may be required for items such as incentives received and initial direct costs. The interest rate implicit in lease contracts is typically not readily determinable. Therefore, the Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

In accordance with the guidance in ASC 842, components of a lease, beginning on or after the ASC 842 effective date, should be broken into three categories: lease components, non-lease components, and operating expenses (e.g. property taxes, insurance, etc.) Then the consideration in the contract must be allocated based on the respective relative fair values to the lease components and non-lease components. The Company elected to not apply the practical expedient combining lease and non-lease components.

There have been no ~~other~~ changes to the significant accounting policies described in the ~~2018~~2019 Form 10-K that have had a material impact on the consolidated financial statements and related notes. The Company has not experienced any significant impact to it’s estimates and assumptions as a result of the COVID-19 pandemic. On an ongoing basis, the Company will continue to closely monitor for any changes to the related impacts, especially on the allowance for doubtful accounts.

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Note 3. Revenue

The Company generates virtual healthcare service revenue from contracts with clients who purchase access to the Company’s professional provider network or medical experts for their employees, dependents and other beneficiaries. The Company’s client contracts include a per-member-per-month subscription access fee as well as certain contracts that generate additional revenue on a per-telehealth visit basis for general medical, other specialty visits and expert medical service on a per case basis. The Company also has certain contracts that generate revenue based solely on a per telehealth visit basis for general medical and other specialty visits. For the Company’s direct-to-consumer behavioral health product, members purchase access to the Company’s professional provider network for a subscription access fee. Accordingly, the Company generates subscription access revenue from subscription access fees and visit fee revenue for general medical, expert medical service and other specialty visits.

The Company’s agreements generally have a term of one year. The majority of clients renew their contracts following their first year of services. Revenues are recognized when the Company satisfies its performance obligation to stand ready to provide telehealth services which occurs when the Company’s clients and members have access to and obtain control of the telehealth service. The Company generally bills for the telehealth services on a monthly basis with payment terms generally being 30 days. There are not significant differences between the timing of revenue recognition and billing. Consequently, the Company has determined that client contracts do not include a financing component. Revenue is recognized in an amount that reflects the consideration that is expected in exchange for the service and includes a variable transaction price as the number of members may vary from period to period. Based on historical experience, the Company estimates this amount.

Subscription access revenue accounted for approximately ~~86%~~76% and ~~87%~~85% of our total revenue for the quarters ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Subscription access revenue accounted for approximately ~~85%~~76% and 84% of our total revenue for the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019, ~~and 2018,~~ respectively.

10.

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The following table presents the Company’s revenues disaggregated by revenue source (in thousands):


	Quarter Ended				Nine Months Ended				Quarter Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Subscription Access Fees:
U.S.	$	92,095	$	72,521	$	258,604	$	198,607	$	152,021	$	85,530	$	259,960	$	166,509
International		27,030		24,040		77,716		49,480		30,150		25,711		59,264		50,686
Visit Fee Revenue:
U.S. Paid Visits		14,142		11,330		47,473		37,334		39,041		15,083		69,939		33,331
U.S. Visit Fee Only		4,307		2,509		11,974		8,758		19,471		3,546		32,057		7,667
International Paid Visits		395		562		1,051		987		347		406		609		656
Total Revenues	$	137,969	$	110,962	$	396,818	$	295,166	$	241,030	$	130,276	$	421,829	$	258,849

As of ~~September~~June 30, ~~2019,~~2020, accounts receivable, net of allowance for doubtful accounts, were ~~$53.7~~$76.9 million. The allowance for doubtful accounts reflects our best estimate of ~~probable~~expected losses inherent in the accounts receivable balance. The Company determines the allowance based on historical experience, specific account information and other currently available evidence.

For certain services, payment is required for future months before the service is delivered to the client or member. The Company records deferred revenue when cash payments are received in advance of the Company’s performance obligation to provide services. The net increase of ~~$6.7~~$12.3 million and ~~$4.0~~$4.6 million in the deferred revenue balance for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, are primarily driven by ~~Advance Medical~~the direct-to-consumer behavioral health product and cash payments received or due in advance of satisfying the Company’s performance obligations, offset by revenue recognized that were included in the deferred revenue balance at the beginning of the period. The Company anticipates that it will satisfy most of its performance obligations associated with the deferred revenue within the prospective fiscal year.

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The Company’s contracts do not generally contain refund provisions for fees earned related to services performed. However, the Company’s direct-to-consumer behavioral health service provides for member refunds. Based on historical experience, the Company estimates the expected amount of refunds to be issued which are recorded as a reduction of revenue. The Company issued refunds of approximately ~~$0.9~~$2.4 million and $0.6 million for the quarter ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The Company issued refunds of approximately ~~$2.1~~$3.7 million and ~~$2.2~~$1.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

Additionally, certain of the Company’s contracts include client performance guarantees that are based upon minimum Member utilization and guarantees by the Company for specific service level performance of the Company’s services. If client performance guarantees are not being realized, the Company records, as a reduction to revenue, an estimate of the amount that will be due at the end of the respective client’s contractual period. For the quarter and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, revenue recognized from performance obligations related to prior periods for the aforementioned changes in transaction price or client performance guarantees, were not material.

The Company has elected the optional exemption to not disclose the remaining performance obligations of its contracts since substantially all of its contracts have a duration of one year or less and the variable consideration expected to be received over the duration of the contract is allocated entirely to the wholly unsatisfied performance obligations.

Note 4. Business Acquisitions

On April 30, 2019, the Company completed the acquisition of the Paris-based telemedicine provider MedecinDirect in which MedecinDirect became a wholly-owned subsidiary of the Company. The aggregate merger consideration paid was $11.2 million with additional potential earnout consideration. The acquisition was considered a stock acquisition for tax purposes and accordingly, the goodwill resulting from the acquisition is not tax deductible.

On May 31, 2018, the Company completed the acquisition of Advance Medical through a merger in which Advance Medical became a wholly-owned subsidiary of the Company. The aggregate merger consideration paid was

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$351.7 million, which was comprised of 1,344,387 shares of Teladoc Health’s common stock valued at $68.6 million on May 31, 2018, and $283.1 million of net cash. Advance Medical is a leading global virtual healthcare provider offering a portfolio of virtual healthcare and expert medical service solutions. The acquisition was considered a stock acquisition for tax purposes and accordingly, the goodwill resulting from this acquisition is not tax deductible. The total acquisition related costs were $5.8 million and included transaction costs for investment bankers and other professional fees.

The acquisition described above was accounted for using the acquisition method of accounting, which requires, among other things, the assets acquired, and the liabilities assumed be recognized at their fair values as of the acquisition date. The results of the acquisition were included within the consolidated financial statements commencing on the aforementioned acquisition date.

The following table summarizes the fair value estimates of the assets acquired and liabilities assumed at the acquisition date. The Company, with the assistance of a third-party valuation expert, estimated the fair value of the acquired tangible and intangible assets.

~~Identifiable assets acquired and liabilities assumed (in thousands):~~

Advance Medical

Purchase price, net of cash acquired

$
351,694

Less:

Accounts receivable

8,553

Property and equipment, net

1,326

Other assets

3,675

Client relationships

100,760

Non-compete agreements

1,540

Internal-use software

770

Trademarks

16,190

Favorable leases

203

Accounts payable

(361)

Deferred taxes

(22,714)

Other liabilities

(8,368)

Goodwill

$
250,120

The amount allocated to goodwill reflects the benefits Teladoc Health expects to realize from the growth of the acquisition operations. Advance Medical’s operating results has been included in the accompanying unaudited consolidated financial statements of the Company since its acquisition on May 31, 2018.

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Note 5. Intangible Assets, Net

Intangible assets, net consist of the following (in thousands):


								Weighted								Weighted
								Average								Average
	Useful			Accumulated		Net Carrying		Remaining	Useful			Accumulated		Net Carrying		Remaining
	Life	Gross Value		Amortization		Value		Useful Life	Life	Gross Value		Amortization		Value		Useful Life
September 30, 2019
June 30, 2020
Client relationships	2 to 20 years	$	233,993	$	(53,826)	$	180,167	13.2	2 to 20 years	$	235,906	$	(72,523)	$	163,383	12.8
Non-compete agreements	1.5 to 5 years		4,919		(4,119)		800	1.7	1.5 to 5 years		4,960		(4,508)		452	0.9
Trademarks	3 to 15 years		42,019		(6,365)		35,654	13.1	3 to 15 years		42,319		(8,524)		33,795	12.2
Patents	3 years		200		(189)		11	0.1	3 years		200		(200)		0	0
Internal-use software and other	3 to 5 years		32,182		(19,976)		12,206	2.2	3 to 5 years		42,546		(26,702)		15,844	2.6
Intangible assets, net		$	313,313	$	(84,475)	$	228,838	12.6		$	325,931	$	(112,457)	$	213,474	11.4
December 31, 2018
December 31, 2019
Client relationships	2 to 20 years	$	233,007	$	(35,453)	$	197,554	13.7	2 to 20 years	$	237,182	$	(60,647)	$	176,535	13.1
Non-compete agreements	1.5 to 5 years		4,992		(3,741)		1,251	2.4	1.5 to 5 years		4,958		(4,260)		698	1.4
Trademarks	3 to 15 years		41,815		(4,137)		37,678	13.9	3 to 15 years		42,606		(7,143)		35,463	12.9
Patents	3 years		200		(139)		61	0.9	3 years		200		(200)		0	0
Internal-use software	3 to 5 years		25,644		(14,794)		10,850	2.0
Internal-use software and other									3 to 5 years		34,850		(22,093)		12,757	2.3
Intangible assets, net		$	305,658	$	(58,264)	$	247,394	13.2		$	319,796	$	(94,343)	$	225,453	12.4

Amortization expense for intangible assets was ~~$8.7~~$9.0 million and ~~$8.9~~$9.0 million for the quarters ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Amortization expense for intangible assets was ~~$26.4~~$17.9 million and ~~$22.9~~$17.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

~~Note 6. Goodwill~~

~~Goodwill consists of the following (in thousands):~~

As of September 30,

As of December 31,

2019

2018

Beginning balance

$
737,197

$
498,520

Additions associated with acquisitions

10,604

250,120

Cumulative translation adjustment

(10,154)

(11,443)

Goodwill

$
737,647

$
737,197

~~Note 7. Leases~~

The Company has operating leases for facilities, hosting co-location facilities and certain equipment under non-cancelable leases in the United States and various international locations. The leases have remaining lease terms of 1 to 11 years, with options to extend the lease term from 1 to 6 years. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the facts and circumstances present. For new and amended leases beginning in 2019 and after, the Company will separately allocate the lease (e.g., fixed lease payments for right-to-use land, building, etc.) and non-lease components (e.g., common area maintenance) for its leases. The components of operating lease expense reflected in the consolidated statements of operations were as follows (in thousands):

Quarters Ended

Nine Months Ended

September 30, 2019

September 30, 2019
Lease cost

Operating lease cost
$
2,206

$
6,073
Variable lease cost

230

698
Total lease cost
$
2,436

$
6,771

In determining the present value of the lease payments, the Company has elected to utilize its incremental borrowing rate based on the original lease term and not the remaining lease term. Additionally, the Company’s policy for

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Note 6. Goodwill

Goodwill consists of the following (in thousands):


	As of June 30,			As of December 31,
	2020		2019
Beginning balance	$	746,079	$	737,197
Additions associated with acquisitions		0		10,604
Cumulative translation adjustment		(3,765)		(1,722)
Goodwill	$	742,314	$	746,079

leases with an initial term of 12 months or less are to not record on the consolidated balance sheets and the Company did not have any such leases. Supplemental information related to operating leases was as follows (in thousands):Note 7. Leases

Nine Months Ended
Consolidated Statements of Cash Flows

September 30, 2019
Operating cash flows used for operating leases

$
5,981
Operating lease liabilities arising from obtaining right-of-use assets

$
4,817

Other Information

Weighted-average remaining lease term

6.25 yrs
Weighted-average discount rate

6.50%

The Company ~~leases~~commenced a new 5 year lease on March 1, 2020 for office space ~~under non-cancelable operating leases~~ in Santa Clara, CA. As a result the ~~United States~~Company recorded a right-of-use asset and ~~various international locations. As~~lease liability of ~~September 30, 2019, the future minimum lease payments under non-cancelable operating leases are~~$6.8 million as ~~follows (in thousands):~~of March 1, 2020.

As of
Operating Leases:

September 30, 2019
2019

$
6,943
2020

5,961
2021

5,768
2022

5,685
2023 and thereafter

13,579
Sub-total

37,936
Less: imputed interest

6,911
Minimum lease payments

$
31,025

Note 8. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):


	As of September 30,		As of December 31,		As of June 30,		As of December 31,
	2019		2018		2020		2019
Professional fees	$	1,900	$	1,264	$	1,838	$	1,535
Consulting fees/provider fees		6,650		6,569		18,430		10,618
Client performance guarantees		2,929		2,910		3,121		3,298
Legal fees		1,250		1,073		1,820		1,077
Interest payable		3,889		883		2,046		838
Income tax payable		4,513		2,610		1,790		2,859
Insurance		2,583		167		2,480		1,263
Lease abandonment obligation - current		101		53
Marketing		3,736		644		3,090		2,810
Operating lease liabilities - current		5,172		—		5,763		5,088
Earnout		663		—		5,216		0
Deferred revenue		14,358		7,650		24,813		12,466
Other		6,078		2,978		4,746		5,053
Total	$	53,822	$	26,801	$	75,153	$	46,905

Note 9. Fair Value Measurements

The Company measures its financial assets and liabilities at fair value at each reporting period using a fair value hierarchy that requires it to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:

Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active

markets.

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Level 2—Include other inputs that are directly or indirectly observable in the marketplace.

Level 3—Unobservable inputs that are supported by little or no market activity.

The Company measures its cash equivalents at fair value on a recurring basis. The Company classifies its cash equivalents within Level 1 because they are valued using observable inputs that reflect quoted prices for identical assets in active markets and quoted prices directly in active markets.

The Company measures its short-term investments at fair value on a recurring basis and classifies such as Level 2. They are valued using observable inputs that reflect quoted prices directly or indirectly in active markets. The short-term investments amortized cost approximates fair value.

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The Company measured its contingent consideration at fair value on a recurring basis and classified such as Level 3. The Company estimates the fair value of contingent consideration as the present value of the expected contingent payments, determined using the weighted probability of the possible payments.

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis using the above input categories (in thousands):


	September 30, 2019								June 30, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	475,242	$	—	$	—	$	475,242	$	1,308,843	$	0	$	0	$	1,308,843
Short-term investments	$	5,012	$	10,621	$	—	$	15,633	$	0	$	2,932	$	0	$	2,932
Contingent liability	$	—	$	—	$	3,967	$	3,967	$	0	$	0	$	4,990	$	4,990


	December 31, 2018								December 31, 2019
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	419,464	$	4,525	$	—	$	423,989	$	514,353	$	0	$	0	$	514,353
Short-term investments	$	—	$	54,545	$	—	$	54,545	$	0	$	2,711	$	0	$	2,711
Contingent liability									$	0	$	0	$	4,769	$	4,769

There were no0 transfers between fair value measurement levels during the quarter and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019.

The change in fair value of the Company’s contingent liability is recorded in general and administrative expenses in the consolidated statements of operations. The following table reconciles the beginning and ending balance of the Company’s Level 3 contingent liability:


Fair value at date of acquisition	$	3,586
Fair value at December 31, 2019			$	4,769
Payments		—		0
Change in fair value		525		215
Currency translation adjustment		(144)		6
Fair value at September 30, 2019	$	3,967
Fair value at June 30, 2020			$	4,990

Note 10. Revolving Credit Facility

The Company entered into a $10.0 million Senior Secured Revolving Credit Facility (the ~~“New Revolving~~“Revolving Credit Facility”) in 2017. The ~~New~~ Revolving Credit Facility is available for working capital and other general corporate purposes. The Company has maintained the ~~New~~ Revolving Credit Facility and, there was no0 amount outstanding as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019. The Company utilized ~~$1.4~~$2.2 million of letters of credit for facility security deposits at ~~September~~June 30, ~~2019.~~2020. The Revolving Credit Facility was terminated pursuant to its terms effective July 14, 2020.

The Company was in compliance with all debt covenants at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

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Note 11. Convertible Senior Notes

Convertible Senior Notes Due 2027

On May 19, 2020, the Company issued, at par value, $1 billion aggregate principal amount of 1.25% convertible senior notes due 2027 (the “2027 Notes”). The 2027 Notes bear cash interest at a rate of 1.25% per year, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 15, 2020. The 2027 Notes will mature on June 1, 2027. The net proceeds to the Company from the offering were $975.9 million after deducting offering costs of approximately $24.1 million.

The 2027 Notes are senior unsecured obligations of the Company and rank senior in right of payment to the Company’s indebtedness that is expressly subordinated in right of payment to the 2027 Notes; equal in right of payment to the Company’s liabilities that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities incurred by the Company’s subsidiaries.

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Holders may convert all or any portion of their 2027 Notes in integral multiples of $1,000 principal amount, at their option, at any time prior to the close of business on the business day immediately preceding December 1, 2026 only under the following circumstances:

●

during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of the shares of Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the 2027 Notes on each applicable trading day;

●

during the 5 business day period after any 10 consecutive trading day period in which the trading price was less than 98% of the product of the last reported sale price of Company’s common stock and the conversion rate for the 2027 Notes on each such trading day;

●

upon the occurrence of specified corporate events described under the 2027 Notes Indenture; or

●

if the Company calls the 2027 Notes for redemption, at any time until the close of business on the second business day immediately preceding the redemption date.

On or after December 1, 2026, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2027 Notes, regardless of the foregoing circumstances.

The conversion rate for the 2027 Notes was initially, and remains, 4.1258 shares of the Company’s common stock per $1,000 principal amount of the 2027 Notes, which is equal to an initial conversion price of approximately $242.38 per share of the Company’s common stock. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination thereof, at the Company’s election. If the Company elects to satisfy the conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and shares of the Company’s common stock, the amount of cash and shares of the Company’s common stock, if any, due upon conversion will be based on a daily conversion value calculated on a proportionate basis for each trading day in a 25 consecutive trading days observation period.

The Company may redeem for cash all or part of the 2027 Notes, at its option, on or after June 5, 2024 if the last reported sale price of its common stock exceeds 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading days ending on, and including the trading day immediately preceding the date on which the Company provides notice of the redemption. The redemption price will be the principal amount of the 2027 Notes to be redeemed, plus accrued and unpaid interest, if any. In addition, calling any 2027 Note for redemption on or after June 5, 2024 will constitute a make-whole fundamental change with respect to that 2027 Note, in which case the conversion rate applicable to the conversion of that 2027 Note, if it is converted in connection with the redemption, will be increased in certain circumstances as described in the indenture governing the 2027 Notes.

In accounting for the issuance of the 2027 Notes, the Company separated the 2027 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2027 Notes as a whole. The excess of the principal amount of the liability component over its carrying amount, referred to as the debt discount, is amortized to interest expense from the issuance date to June 1, 2027. The equity component is not re-measured as long as it continues to meet the conditions for equity classification. The equity component related to the 2027 Notes was $286 million, net of issuance costs which was recorded in additional paid-in capital on the accompanying condensed consolidated balance sheet. The Company has reserved 5.4 million shares of common stock for the 2027 Notes.

In accounting for the transaction costs related to the issuance of the 2027 Notes, the Company allocated the total costs incurred to the liability and equity components of the 2027 Notes based on their relative values. Transaction costs attributable to the liability component are being amortized to interest expense over the seven year term of the 2027 Notes, and transaction costs attributable to the equity component are netted with the equity components in stockholders’ equity.

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The 2027 Notes consist of the following (in thousands):


	As of June 30,
Liability component	2020
Principal	$	1,000,000
Less: Debt discount, net (1)		(305,639)
Net carrying amount	$	694,361

(1)

Included in the accompanying consolidated balance sheet within convertiable senior notes and amortized to interest expense over the expected life of the 2027 Notes using the effective interest rate method.

The fair value of the 2027 Notes was approximately $1,103.3 million as of June 30, 2020. The Company estimates the fair value of its 2027 Notes utilizing market quotations for debt that have quoted prices in active markets. Since the 2027 Notes do not trade on a daily basis in an active market, the fair value estimates are based on market observable inputs based on borrowing rates currently available for debt with similar terms and average maturities, which are classified as Level 2 measurements within the fair value hierarchy. See Note 9, “Fair Value Measurements,” for definitions of hierarchy levels. As of June 30, 2020, the remaining contractual life of the 2027 Notes is approximately 6.9 years.

The following table sets forth total interest expense recognized related to the 2027 Notes (in thousands):


	Six Months Ended
	June 30,
	2020
Contractual interest expense	$	1,493
Amortization of debt discount		4,033
Total	$	5,526
Effective interest rate of the liability component		7.0	%

Convertible Senior Notes Due 2025

On May 8, 2018, the Company issued, at par value, $287.5 million aggregate principal amount of 1.375% convertible senior notes due ~~2025.~~2025 (the “2025 Notes”). The 2025 Notes bear cash interest at a rate of 1.375% per year, payable semi-annually in arrears on May 15 and November 15 of each year. The 2025 Notes will mature on May 15, 2025. The net proceeds to the Company from the offering were $279.1 million after deducting offering costs of approximately $8.4 million.

The 2025 Notes are senior unsecured obligations of the Company and rank senior in right of payment to the Company’s indebtedness that is expressly subordinated in right of payment to the 2025 Notes; equal in right of payment to the Company’s liabilities that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities incurred by the Company’s subsidiaries.

Holders may convert all or any portion of their 2025 Notes in integral multiples of $1,000 principal amount, at their option, at any time prior to the close of business on the business day immediately preceding November 15, 2024 only under the following circumstances:

●

during any calendar quarter (and only during such calendar quarter), if the last reported sale price of the shares of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the 2025 Notes on each applicable trading day;

●

during the 5 business day period after any 10 consecutive trading day period in which the trading price was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate for the 2025 Notes on each such trading day;

●

upon the occurrence of specified corporate events described under the indenture governing the 2025 ~~Notes Indenture;~~Notes; or

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●

if the Company calls the 2025 Notes for redemption, at any time until the close of business on the second business day immediately preceding the redemption date.

On or after November 15, 2024, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2025 Notes, regardless of the foregoing circumstances.

The conversion rate for the 2025 Notes was initially, and remains, 18.6621 shares of the Company’s common stock per $1,000 principal amount of the 2025 Notes, which is equivalent to an initial conversion price of approximately $53.58 per share of the Company’s common stock. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination thereof, at the Company’s election. If the Company elects to satisfy the conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and shares of the Company’s common stock, the amount of cash and shares of the Company’s common stock, if any, due upon conversion will be based on a daily conversion value calculated on a proportionate basis for each trading day in a 25 trading day observation period.

The Company may redeem for cash all or any portion of the 2025 Notes, at its option, on or after May 22, 2022 if the last reported sale price of its common stock exceeds 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading days ending on, and including the trading day immediately preceding the date on which the Company provides notice of the redemption. The redemption price will be the principal amount of the 2025 Notes to be redeemed, plus accrued and unpaid interest, if any. In addition, calling any 2025 Note for redemption on or after May 22, 2022 will constitute a make-whole fundamental change with respect to that 2025 Note, in which case the conversion rate applicable to the conversion of that Note, if it is converted in connection with the redemption, will be increased in certain circumstances as described in the indenture governing the 2025 ~~Notes Indenture.~~Notes.

In accounting for the issuance of the 2025 Notes, the Company separated the 2025 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par

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value of the 2025 Notes as a whole. The excess of the principal amount of the liability component over its carrying amount, referred to as the debt discount, is amortized to interest expense from the issuance date to ~~November~~May 15, ~~2024 (the first date on which the Company may be required to repurchase the 2025 Notes at the option of the holder).~~2025. The equity component is not re-measured as long as it continues to meet the conditions for equity classification. The equity component related to the 2025 Notes was $91.4 million, net of issuance costs which was recorded in additional paid-in capital on the accompanying consolidated balance sheet.

In accounting for the transaction costs related to the issuance of the 2025 Notes, the Company allocated the total costs incurred to the liability and equity components of the 2025 Notes based on their relative values. Transaction costs attributable to the liability component are being amortized to interest expense over the seven-year term of the 2025 Notes, and transaction costs attributable to the equity component are netted with the equity component in stockholders’ equity.

The 2025 Notes consist of the following (in thousands):


	As of September 30,		As of December 31,		As of June 30,		As of December 31,
Liability component	2019		2018		2020		2019
Principal	$	287,500	$	287,500	$	287,500	$	287,500
Less: Debt discount, net ~~(1)~~(2)		(84,237)		(92,913)		(74,989)		(81,207)
Net carrying amount	$	203,263	$	194,587	$	212,511	$	206,293

~~(1)~~(2)

Included in the accompanying consolidated balance sheets within convertible senior notes and amortized to interest expense over the expected life of the 2025 Notes using the effective interest rate method.

The fair value of the 2025 Notes was approximately ~~$427.1~~$1,023.9 million as of ~~September~~June 30, ~~2019.~~2020. The Company estimates the fair value of its 2025 Notes utilizing market quotations for debt that have quoted prices in active markets. Since the 2025 Notes do not trade on a daily basis in an active market, the fair value estimates are based on market observable inputs based on borrowing rates currently available for debt with similar terms and average maturities, which are classified as Level 2 measurements within the fair value hierarchy. See Note 9, “Fair Value Measurements,” for

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definitions of hierarchy levels. As of ~~September~~June 30, ~~2019,~~2020, the remaining contractual life of the 2025 Notes is approximately ~~5.6~~4.9 years.

The following table sets forth total interest expense recognized related to the 2025 Notes (in thousands):


	Quarters Ended						Nine Months Ended						Quarters Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Contractual interest expense	$	988		$	996		$	2,965		$	1,581		$	989		$	1,002		$	1,977		$	1,977
Amortization of debt discount		2,949			2,593			8,677			4,086			3,142			2,892			6,218			5,728
Total	$	3,937		$	3,589		$	11,642		$	5,667		$	4,131		$	3,894		$	8,195		$	7,705
Effective interest rate of the liability component		7.9	%		7.9	%		7.9	%		7.9	%		7.9	%		7.9	%		7.9	%		7.9	%

Convertible Senior Notes Due 2022

~~On June 27, 2017, the~~The Company had issued, at par value, $275 million aggregate principal amount of 3% convertible senior notes due ~~2022.~~2022 (the “2022 Notes”) on June 27, 2017. The 2022 Notes bear cash interest at a rate of 3% per year, payable semi-annually in arrears on June 15 and December 15 of each year. The remaining 2022 Notes will mature on December 15, 2022. The net proceeds to the Company from the offering were $263.7 million after deducting offering costs of approximately $11.3 million.

The 2022 Notes are senior unsecured obligations of the Company and rank senior in right of payment to the Company’s indebtedness that is expressly subordinated in right of payment to the 2022 Notes; equal in right of payment to the Company’s liabilities that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities incurred by the Company’s subsidiaries.

Holders may convert all or any portion of their 2022 Notes in integral multiples of $1,000 principal amount, at their option, at any time prior to the close of business on the business day immediately preceding June 15, 2022 only

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under the following circumstances:

●

upon the occurrence of specified corporate events described under the indenture governing the 2022 ~~Notes Indenture;~~Notes; or

●

if the Company calls the 2022 Notes for redemption, at any time until the close of business on the second business day immediately preceding the redemption date.

On or after June 15, 2022, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2022 Notes, regardless of the foregoing circumstances.

The conversion rate for the 2022 Notes was initially, and remains, 22.7247 shares of the Company’s common stock per $1,000 principal amount of the 2022 Notes, which is equivalent to an initial conversion price of approximately $44.00 per share of the Company’s common stock. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination thereof, at the Company’s election. If the Company elects to satisfy the conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and shares of the Company’s common stock, the amount of cash and shares of the Company’s common stock, if any, due upon conversion will be based on a daily conversion value calculated on a proportionate basis for each trading day in a 25 trading day observation period.

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The Company may redeem for cash all or any portion of the 2022 Notes, at its option, on or after December 22, 2020 if the last reported sale price of its common stock exceeds 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading days ending on, and including the trading day immediately preceding the date on which the Company provides notice of the redemption. The redemption price will be the principal amount of the 2022 Notes to be redeemed, plus accrued and unpaid interest, if any. In addition, calling any 2022 Note for redemption on or after December 22, 2020 will constitute a make-whole fundamental change with respect to that 2022 Note, in which case the conversion rate applicable to the conversion of that Note, if it is converted in connection with the redemption, will be increased in certain circumstances as described in the indenture governing the 2022 ~~Notes Indenture.~~Notes.

In accounting for the issuance of the 2022 Notes, the Company separated the 2022 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2022 Notes as a whole. The excess of the principal amount of the liability component over its carrying amount, referred to as the debt discount, is amortized to interest expense from the issuance date to June 15, 2022 (the first date on which the Company may be required to repurchase the 2022 Notes at the option of the holder). The equity component is not re-measured as long as it continues to meet the conditions for equity classification. The equity component related to the 2022 Notes was $62.4 million, net of issuance costs which was recorded in additional paid-in capital on the accompanying condensed consolidated balance sheet.

In accounting for the transaction costs related to the issuance of the 2022 Notes, the Company allocated the total costs incurred to the liability and equity components of the 2022 Notes based on their relative values. Transaction costs attributable to the liability component are being amortized to interest expense over the five and a half year term of the 2022 Notes, and transaction costs attributable to the equity component are netted with the equity components in stockholders’ equity.

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The 2022 Notes consist of the following (in thousands):


	As of September 30,		As of December 31,		As of June 30,		As of December 31,
Liability component	2019		2018		2020		2019
Principal	$	274,995	$	275,000	$	46,771	$	274,995
Less: Debt discount, net ~~(2)~~(3)		(44,498)		(54,904)		(5,465)		(40,878)
Net carrying amount	$	230,497	$	220,096	$	41,306	$	234,117

~~(2)~~(3)

Included in the accompanying consolidated balance sheets within convertible senior notes and amortized to interest expense over the expected life of the 2022 Notes using the effective interest rate method.

The fair value of the 2022 Notes was approximately ~~$468.7~~$203.3 million as of ~~September~~June 30, ~~2019.~~2020. The Company estimates the fair value of its 2022 Notes utilizing market quotations for debt that have quoted prices in active markets. Since the 2022 Notes do not trade on a daily basis in an active market, the fair value estimates are based on market observable inputs based on borrowing rates currently available for debt with similar terms and average maturities, which are classified as Level 2 measurements within the fair value hierarchy. See Note 9, “Fair Value Measurements,” for definitions of hierarchy levels. As of ~~September~~June 30, ~~2019,~~2020, the remaining contractual life of the 2022 Notes is approximately ~~3.2~~2.5 years.

The following table sets forth total interest expense recognized related to the 2022 Notes (in thousands):


	Quarters Ended						Nine Months Ended						Quarters Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Contractual interest expense	$	2,062		$	2,079		$	6,187		$	6,170		$	1,286		$	2,091		$	3,349		$	4,125
Amortization of debt discount		3,620			3,285			10,406			9,442			2,521			3,412			6,281			6,786
Total	$	5,682		$	5,364		$	16,593		$	15,612		$	3,807		$	5,503		$	9,630		$	10,911
Effective interest rate of the liability component		10.0	%		10.0	%		10.0	%		10.0	%		10.0	%		10.0	%		10.0	%		10.0	%

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On May 14, 2020, the Company entered into privately negotiated agreements with certain holders of 2022 Notes to exchange 2022 Notes for shares of the Company’s common stock, together with cash, in private placement transactions pursuant to Section 4(a)(2) of the Securities Act (the “Exchange Transactions”). The closing occurred on May 19, 2020. In exchange for approximately $228.2 million aggregate principal amount of 2022 Notes, the Company paid approximately $231.1 million in cash (including accrued and unpaid interest and cash paid in lieu of fractional shares), together with an aggregate of approximately 3.9 million shares of its common stock. As a result of the Exchange Transactions, the company recorded a charge associated with the loss on extinguishment of debt of $7.7 million during the quarter ended June 30, 2020.

Approximately $46.8 million aggregate principal amount of the 2022 Notes remains outstanding as of June 30, 2020.

Note 12. Legal Matters

From time to time, Teladoc Health is involved in various litigation matters arising out of the normal course of business, including the matters described below. The Company consults with legal counsel on those issues related to litigation and seek input from other experts and advisors with respect to such matters. Estimating the probable losses or a range of probable losses resulting from litigation, government actions and other legal proceedings is inherently difficult and requires an extensive degree of judgment, particularly where the matters involve indeterminate claims for monetary damages, may involve discretionary amounts, present novel legal theories, are in the early stages of the proceedings, or are subject to appeal. Whether any losses, damages or remedies ultimately resulting from such matters could reasonably have a material effect on our business, financial condition, results of operations, or cash flows will depend on a number of variables, including, for example, the timing and amount of such losses or damages (if any) and the structure and type of any such remedies. Teladoc Health’s management does not presently expect any litigation matter to have a material adverse impact on our business, financial condition, results of operations or cash flows.

On December 12, 2018, a purported securities class action complaint (Reiner v. Teladoc Health, Inc., et.al.) was filed in the United States District Court for the Southern District of New York (the “SDNY”) against the Company and certain of the Company’s officers and a former officer. The complaint is brought on behalf of a purported class consisting of all persons or entities who purchased or otherwise acquired shares of the Company’s common stock during the period March 3, 2016 through December 5, ~~2018.~~2019. The complaint asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on allegedly false or misleading statements and omissions with respect to, among other things, the alleged misconduct of one of the Company’s previous Executive Officers. The complaint seeks certification as a class action and unspecified compensatory damages plus interest and attorneys’ fees. The Company believes that the claims against the Company and its officers are without merit, and the Company and its named officers intend to defend the Company vigorously, including filing a motion to dismiss the complaint.

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substantially similar to those in the purported securities class action complaint described above. The Company believes that the claims set forth in this stockholder derivative lawsuit are without merit.

On May 14, 2018, a purported class action complaint (Thomas v. Best Doctors, Inc.) was filed in the United States District Court for the District of Massachusetts against the Company’s wholly owned subsidiary, Best Doctors, Inc. The complaint alleges that on or about May 16, 2017, Best Doctors violated the U.S. Telephone Consumer Protection Act (TCPA) by sending unsolicited facsimiles to plaintiff and certain other recipients without the recipients’ prior express invitation or permission. The lawsuit seeks statutory damages for each violation, subject to trebling under the TCPA, and injunctive relief. The Company will vigorously defend the lawsuit and any potential loss is currently deemed to be immaterial.

Note 13. Common Stock and Stockholders’ Equity

Capitalization

Effective May 31, 2018, the authorized number of shares of the Company’s common stock was increased from 100,000,000 to 150,000,000 shares.

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Stock ~~Plan~~Plans and Stock Options

The Company’s 2015 Incentive Award Plan ~~(the “Plan”~~and 2017 Employment Inducement Incentive Award Plan (together, the “Plans”) ~~provides~~provide for the issuance of incentive and non-statutory options and other equity-based awards to its employees and non-employees. Options issued under the ~~Plan~~Plans are exercisable for periods not to exceed ten years, and vest and contain such other terms and conditions as specified in the applicable award document. Options to buy common stock are issued under the ~~Plan,~~Plans, with exercise prices equal to the closing price of shares of the Company’s common stock on the New York Stock Exchange on the date of award. The Company had ~~4,707,092~~8,179,285 shares available for grant at ~~September~~June 30, ~~2019.~~2020.

Activity under the ~~Plan~~Plans is as follows (in thousands, except share and per share amounts and years):


				Weighted-						Weighted-
		Weighted-		Average				Weighted-		Average
	Number of	Average		Remaining	Aggregate		Number of	Average		Remaining	Aggregate
	Shares	Exercise		Contractual	Intrinsic		Shares	Exercise		Contractual	Intrinsic
	Outstanding	Price		Life in Years	Value		Outstanding	Price		Life in Years	Value
Balance at December 31, 2018	6,947,797	$	23.15	7.86	$	186,770
Balance at December 31, 2019							5,206,981	$	24.47	7.03	$	308,538
Stock option grants	160,658	$	62.55	—	$	—	10,832	$	125.65	0	$	0
Stock options exercised	(1,271,012)	$	19.53	—	$	—	(1,598,963)	$	21.00	0	$	0
Stock options forfeited	(229,188)	$	39.66	—	$	—	(148,655)	$	32.82	0	$	0
Balance at September 30, 2019	5,608,255	$	24.59	7.28	$	237,859
Vested or expected to vest at September 30, 2019	5,608,255	$	24.59	7.28	$	237,859
Exercisable at September 30, 2019	3,160,119	$	19.47	6.86	$	152,573
Balance at June 30, 2020							3,470,195	$	25.97	6.62	$	575,590
Vested or expected to vest at June 30, 2020							3,470,194	$	25.97	6.62	$	575,590
Exercisable at June 30, 2020							2,439,319	$	20.94	6.28	$	414,445

The total grant-date fair value of stock options granted during the quarters ended ~~September~~June 30, 2020 and 2019 ~~and 2018~~ was ~~$2.1~~$0.2 million and ~~$2.3~~$1.2 million, respectively. The total grant-date fair value of stock options granted during the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019 ~~and 2018~~ was ~~$4.7~~$0.5 million and ~~$24.6~~$2.4 million, respectively.

Stock-Based Compensation

All stock-based awards to employees are measured based on the grant-date fair value of the awards and are generally recognized on a straight line basis in the Company’s consolidated statement of operations over the period during which the employee is required to perform services in exchange for the award (generally requiring a four-year vesting period for each stock option and a three-year vesting period for each ~~RSU)~~restricted stock unit (“RSU”)). The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model.

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The assumptions used in the Black-Scholes option-pricing model are determined as follows:

Volatility. Since the Company does not have a trading history prior to July 2015 for its common stock, the expected volatility was derived from the historical stock volatilities of several unrelated public companies within its industry that it considers to be comparable to its business combined with the Company’s stock volatility over a period equivalent to the expected term of the stock option grants.

Risk-Free Interest Rate. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with terms similar to the expected term on the options.

Expected Term. The expected term represents the period that the stock-based awards are expected to be outstanding. When establishing the expected term assumption, the Company utilizes historical data.

Dividend Yield. The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and therefore, it used an expected dividend yield of 0.

Forfeiture rate. The Company recognizes forfeitures as they occur.

~~The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions and fair value per share:~~

Nine Months Ended September 30,

2019

2018

Volatility

46.8% – 47.6%

43.5% – 46.1%

Expected life (in years)

5.3

6.0

Risk-free interest rate

1.35% - 2.55%

2.45% - 2.88%

Dividend yield

–

–

Weighted-average fair value of underlying stock options

$
29.21

$
19.54

For the quarter ended September 30, 2019 and 2018, the Company recorded compensation expense related to stock options granted of $4.6 million and $6.4 million, respectively. For the nine months ended September 30, 2019 and 2018, the Company recorded compensation expense related to stock options granted of $15.3 million and $17.7 million, respectively.

As of September 30, 2019, the Company had $31.7 million in unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted-average period of approximately 2.1 years.

~~Restricted Stock Units~~

~~In May 2017, the Company commenced issuing Restricted Stock Units (“RSU’s”) pursuant to the Plan to certain employees and Board members under the 2017 Employment Inducement Incentive Award Plan.~~

The fair value of the RSU’s is determined on the date of grant. The Company will record compensation expense in the consolidated statement of operations on a straight-line basis over the vesting period for RSU’s and on an accelerated tranche by tranche basis for Performance based awards. The vesting period for employees and members of the Board of Directors ranges from one to four years.

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The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions and fair value per share:


	Six Months Ended June 30,
	2020		2019
Volatility		46.1% – 51.0%		46.9% – 47.6%
Expected life (in years)		4.3		5.2
Risk-free interest rate		0.27% - 1.64%		1.75% - 2.55%
Dividend yield		0		0
Weighted-average fair value of underlying stock options	$	49.44	$	27.34

For the quarter ended June 30, 2020 and 2019, the Company recorded compensation expense related to stock options granted of $4.2 million and $5.2 million, respectively. For the six months ended June 30, 2020 and 2019, the Company recorded compensation expense related to stock options granted of $8.1 million and $10.7 million, respectively.

As of June 30, 2020, the Company had $16.4 million in unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted-average period of approximately 1.8 years.

Restricted Stock Units

In May 2017, the Company commenced issuing RSUs to certain employees and Board members under the 2017 Employment Inducement Incentive Award Plan.

The fair value of the RSUs is determined on the date of grant. The Company will record compensation expense in the consolidated statement of operations on a straight-line basis over the vesting period for RSUs. The vesting period for employees and members of the Board of Directors ranges from one to four years.

Activity under the ~~RSU’s~~RSUs is as follows:


		Weighted-Average			Weighted-Average
		Grant Date			Grant Date
	Shares	Fair Value Per Share		RSUs	Fair Value Per RSU
Balance at December 31, 2018	1,409,448	$	40.51
Balance at December 31, 2019				1,483,558	$	54.13
Granted	1,340,962	$	65.58	342,383	$	125.69
Vested and issued	(533,717)	$	39.69	(565,724)	$	52.11
Forfeited	(169,845)	$	52.44	(73,072)	$	52.17
Balance at September 30, 2019	2,046,848	$	55.88
Vested and unissued at September 30, 2019	13,755	$	50.90
Non-vested at September 30, 2019	2,033,093	$	55.88
Balance at June 30, 2020				1,187,145	$	58.82
Vested and unissued at June 30, 2020				13,755	$	50.90
Non-vested at June 30, 2020				1,173,390	$	58.91

The total grant-date fair value of RSU’s granted during the quarter ended ~~September~~June 30, 2020 and 2019 ~~and 2018~~ were ~~$3.3~~$3.5 million and ~~$2.7~~$6.8 million, respectively. The total grant-date fair value of ~~RSU’s~~RSUs granted during the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019 ~~and 2018~~ were ~~$86.7~~$43.0 million and ~~52.8~~$56.5 million, respectively.

For the quarter ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, the Company recorded stock-based compensation expense related to the RSU’s of ~~$12.5~~$11.3 million and ~~$5.6~~$7.8 million, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, the Company recorded stock-based compensation expense related to the ~~RSU’s~~RSUs of ~~$32.2~~$20.7 million and ~~$12.7~~$12.8 million, respectively.

As of ~~September~~June 30, ~~2019,~~2020, the Company had ~~$87.4~~$74.8 million in unrecognized compensation cost related to non-vested ~~RSU’s,~~RSUs, which is expected to be recognized over a weighted-average period of approximately ~~2.1~~1.8 years.

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Performance Stock Units

The Company began issuing grants Performance Stock Units (“PSUs”) to employees under the Plan in 2018. Stock-based compensation costs associated with our PSUs are initially determined using the fair market value of the Company's common stock on the date the awards are approved by the Compensation Committee of the Board of Directors (service inception date). The vesting of these PSU is subject to certain performance conditions and a service requirement ranging from 1-3 years. Until the performance conditions are met, stock compensation costs associated with these PSU reflect the estimated performance attainment on the reporting date. The ultimate number of PSUs that are issued to an employee is the result of the actual performance of the Company at the end of the performance period compared to the performance conditions and can range from 50% to 200% of the initial grant. Stock compensation expense for PSUs is recognized on an accelerated tranche by tranche basis for performance-based awards. Forfeitures are accounted for at the time the occur consistent with Company policy.

Activity under the PSU is as follows:


		Weighted-Average
		Grant Date
	Shares	Fair Value Per Share
Balance at December 31, 2019	512,482	$	62.51
Granted	111,199	$	117.81
Vested and issued	(186,455)	$	62.02
Balance at June 30, 2020	437,226	$	76.78
Vested and unissued at June 30, 2020	0	$	0
Non-vested at June 30, 2020	437,226	$	76.78

NaN PSUs were granted during the quarter ended June 30, 2020 and 2019. The total grant-date fair value of PSU’s granted during the six months ended June 30, 2020 and 2019 were $13.1 million and $28.5 million, respectively

For the quarter ended June 30, 2020 and 2019, the Company recorded stock-based compensation expense related to the PSU of $6.2 million and $4.2 million, respectively. For the six months ended June 30, 2020 and 2019, the Company recorded stock-based compensation expense related to the PSUs of $10.9 million and $6.9 million, respectively.

As of June 30, 2020, the Company had $28.4 million in unrecognized compensation cost related to non-vested PSU, which is expected to be recognized over a weighted-average period of approximately 1.6 years.

Employee Stock Purchase Plan

In July 2015, the Company adopted the 2015 Employee Stock Purchase Plan, or ESPP, in connection with its initial public offering. A total of ~~738,875~~832,492 shares of common stock were reserved for issuance under this plan as of ~~September~~June 30, ~~2019.~~2020. The Company’s ESPP permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. Under the ESPP, the Company may specify offerings with durations of not more than 27 months and may specify shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of its common stock will be purchased for employees participating in the offering. An offering may be terminated under certain circumstances. The price at which the stock is purchased is equal to the lower of 85% of the fair market value of the common stock at the beginning of an offering period or on the date of purchase.

During the ~~nine months~~quarter ended ~~September~~June 30, 2020 and 2019, the Company issued 35,901 shares and 35,716 shares, ~~under the ESPP. During 2018, the Company issued 85,218 shares~~respectively, under the ESPP. As of ~~September~~June 30, ~~2019, 490,431~~2020, 519,366 shares remained available for issuance.

For the quarter ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, the Company recorded stock-based compensation expense related to the ESPP of ~~$0.2~~$0.5 million and $0.2 million, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, the Company recorded stock-based compensation expense related to the ESPP of ~~$0.7~~$0.9 million and ~~$0.7~~$0.5 million, ~~respectively.~~respectively

As of ~~September~~June 30, ~~2019,~~2020, the Company had ~~$0.1~~$0.8 million in unrecognized compensation cost related to the ESPP, which is expected to be recognized over a weighted-average period of approximately ~~0.1~~0.4 years.

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Total compensation costs charged as an expense for stock-based awards, including stock options, ~~RSU’s~~RSUs, PSUs and ESPP, recognized in the components of operating expenses are as follows (in thousands):


	Quarter Ended				Nine Months Ended				Quarter Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Administrative and marketing	$	1,384	$	579	$	3,522	$	1,551	$	1,544	$	1,317	$	2,803	$	2,138
Sales		2,732		2,065		7,390		5,641		3,271		2,528		6,190		4,658
Technology and development		1,594		1,588		5,633		4,466		2,559		2,141		4,663		4,039
General and administrative		11,644		7,963		31,700		19,428		14,554		11,382		26,587		20,056
Total stock-based compensation expense	$	17,354	$	12,195	$	48,245	$	31,086	$	21,928	$	17,368	$	40,243	$	30,891

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Note 14. Income Taxes

As a result of the Company’s history of net operating losses (“NOL”), the Company has provided for a full valuation allowance against its deferred tax assets for assets that are not more-likely-than-not to be realized. For the quarter and six months ended ~~September~~June 30, 2020, the Company recognized an income tax benefit of $(2.4) million and $(3.1) million, respectively, primarily due to the amortization of acquired intangibles and stock compensation deductions. For the quarter and six months ended June 30, 2019, the Company recognized an income tax ~~benefit~~expense of ~~$8.1~~$0.1 million primarily due to the anticipated intercompany transfer of a U.S. subsidiary from a foreign owned subsidiary to the U.S. parent. This transaction resulted in the partial release of the valuation allowance due to a reassessment of the realizability of deferred tax assets. This benefit was partially offset by tax expenseand $0.8 million, respectively, related to certain United States and foreign income, as well as amortization of tax-deductible goodwill, ~~net of~~which partially benefits the realization of its indefinite lived ~~NOL. For the quarter ended September 30, 2018, the income tax benefit was recognized for the indefinite lived~~ NOL that is forecasted for the 2018 calendar year which can be netted up to 80% of the deferred tax liability associated with the goodwill, offset by timing differences with respect to the treatment of the amortization of tax-deductible goodwill, as well as foreign related income. The income tax benefit for the nine months ended September 30, 2019 is primarily due to the partial release of the valuation allowance due to a reassessment of the realizability of deferred tax assets as discussed above. This benefit is partially offset by expense resulting from increases in income from Advance Medical entities, as compared to the nine months ended September 30, 2018, for which there are limited net operating losses to offset the increased income. A majority of the Company’s operations, and resulting deferred tax assets, were generated in the United States.

Beginning with the quarter ended March 31, 2018, the Company is calculating tax expense based on the U.S. statutory rate of 21%. The US Federal tax law includes a Base Erosion Anti-Abuse Tax, commonly referred to as BEAT, which imposes a minimum tax on certain deductible payments or accruals made to foreign affiliates in tax years beginning after December 31, 2017. The Company has determined that it is currently not subject to BEAT. US Federal tax law imposes a minimum tax on global intangible low-taxed income, commonly referred to as GILTI. The Company does not expect to recognize any tax expense related to GILTI as it has net operating losses available and a full valuation allowance. In addition, US Tax law imposes an interest expense limitation which disallows a portion of the interest deduction based on EBITDA. While the disallowed interest deduction is deferred, there is no impact to tax expense due to the current year taxable loss and related valuation allowance.

Note 15. Subsequent Events

On July 1, 2020, the Company completed the acquisition of InTouch Technologies, Inc., the leading provider of enterprise telehealth solutions for hospitals and health systems. The purchase price was $1,076.4 million consisting of $157.5 million of cash and 4.6 million shares of Teladoc Health’s common stock valued at approximately $918.9 million on July 1, 2020.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. All statements other than statements of historical fact are, or may be, forward-looking statements. These forward-looking statements are not historical facts, but rather are based on current expectations, estimate, assumptions and projections about our industry, business and future financial results. We use words such as “anticipates”, “believes”, “suggests”, “targets”, “projects”, “plans”, “expects”, “future”, “intends”, “estimates”, “predicts”, “potential”, “may”, “will”, “should”, “could”, “would”, “likely”, “foresee”, “forecast”, “continue” and other similar words or phrases, as well as statements in the future tense to identify these forward-looking statements.

Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be different from any future results, performance and achievements expressed or implied by these statements. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of important factors, including those set forth below.

●

ongoing legal challenges to or new state actions against our business model;

●

our dependence on our relationships with affiliated professional entities;

●

evolving government regulations and our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business;

●

our ability to operate in the heavily regulated healthcare industry;

●

our history of net losses and accumulated deficit;

●

failures of our cyber-security measures that expose the confidential information of our Clients and Members;

●

risk of the loss of any of our significant Clients;

●

risks associated with a decrease in the number of individuals offered benefits by our Clients or the number of products and services to which they subscribe;

●

our ability to establish and maintain strategic relationships with third parties;

●

risks specifically related to our ability to operate in competitive international markets and comply with complex non-U.S. legal requirements;

●

our ability to recruit and retain a network of qualified Providers;

●

risk that the insurance we maintain may not fully cover all potential exposures;

●

rapid technological change in the telehealth market;

●

our ability to integrate acquired businesses and achieve fully the strategic and financial objectives related thereto and its impact on our financial condition and results of operations;

●

our level of indebtedness and our ability to fund debt obligations and comply with covenants in our debt instruments;

●

risks associated with potential disruptions to our business caused by the COVID-19 pandemic;

●

any statements of belief and any statements of assumptions underlying any of the foregoing;

●

other factors disclosed in this Form 10-Q; and

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●

other factors beyond our control.

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The foregoing list of factors is not exhaustive and does not necessarily include all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. The information in this Quarterly Report should be read carefully in conjunction with other uncertainties and potential events described in our Form 10-K in the Annual Report for the year ended December 31, ~~2018~~2019 filed with the Securities and Exchange Commission (the “SEC”) and our other filings with the SEC. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this Quarterly Report. Except as required by law or regulation, we do not undertake any obligation to update any forward-looking statements to reflect subsequent events or circumstances.

Overview

Teladoc, Inc. was incorporated in the State of Texas in June 2002 and changed its state of incorporation to the State of Delaware in October 2008. Effective August 10, ~~2018,~~2019, Teladoc, Inc. changed its corporate name to Teladoc Health, Inc. from Teladoc, Inc. Unless the context otherwise requires, Teladoc Health, Inc., together with its subsidiaries, is referred to herein as “Teladoc Health” or the “Company”. The Company’s principal executive office is located in Purchase, New York. Teladoc Health is the global leader in providing virtual healthcare services with a focus on high quality, lower costs, and improved outcomes around the world.

Teladoc Health solutions are transforming the access, cost and quality dynamics of healthcare delivery for all of our market participants. Members rely on Teladoc Health to remotely access affordable, on-demand healthcare whenever and wherever they choose. Employers, health plans and health systems, or our Clients, as well as our direct-to-consumer members purchase our solutions to reduce their healthcare spending and offer convenient, affordable, high-quality healthcare to their employees or beneficiaries. Our network of physicians and other healthcare professionals, or our Providers have the ability to generate meaningful income and deliver their services more efficiently with no administrative burden.

Revenue

We have a demonstrated track record of driving growth both organically and through acquisitions. We increased revenue ~~24%~~85% to ~~$138.0~~$241.0 million for the quarter ended ~~September~~June 30, ~~2019,~~2020, which was largely organic growth and including ~~$0.9~~$0.3 million from our 2019 MedecinDirect acquisition. The increase in revenue includes significant surge in demand for our services associated with the global outbreak of COVID-19. We increased revenue ~~34%~~63% to ~~$396.8~~$421.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, which was largely organic growth and including ~~$37.2~~$1.2 million from our ~~Advance Medical and MedecinDirect acquisition.~~2019 MedicinDirect acquisition

For the quarter and six months ended ~~September~~June 30, ~~2019, 86%~~2020, 76% and ~~14%~~24% of our revenue was derived from subscription access fees and visit fees, ~~respectively and for~~respectively. For the ~~nine months~~quarter ended ~~September~~June 30, 2019, 85% and 15% of our revenue was derived from subscription access fees and visit fees, ~~respectively. For the quarter ended September 30, 2018, 87% and 13% of our revenue were derived from subscription access fees and visit fees,~~ respectively and for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, 84% and 16% of our revenue were derived from subscription access fees and visit fees, respectively. WeThe increased percentage of visit related revenue in 2020 is a result of the COVID-19 pandemic. Additionally, we believe our continued strong subscription fee revenue is mainly representative of the value proposition we provide the broader U.S. healthcare system.

Membership and Visits

We completed approximately ~~2,899,000~~4.8 million telehealth visits in the first ~~nine~~six months of ~~2019~~2020 and approximately ~~2,640,000~~4.1 million telehealth visits for the full year of ~~2018.~~2019. Paid Membership increased by approximately ~~12.2~~14.8 million Members to ~~35.0~~51.5 million from December 31, ~~2018~~2019 through ~~September~~June 30, ~~2019.~~

~~Financing Activities~~

In July 2018, we successfully closed on a follow-on offering (the “July Offering”) in which the Company issued and sold 5,000,000 shares of common stock, at an issuance price of $66.28 per share. The Company received net proceeds of $330.9 million after deducting offering expenses of $0.5 million.

In May 2018, the Company issued, at par value, $287.5 million aggregate principal amount of 1.375% convertible senior notes due 2025 (the “2025 Notes”). The 2025 Notes bear cash interest at a rate of 1.375% per year, payable semi-annually in arrears on May 15 and November 15 of each year. The 2025 Notes will mature on

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~~May 15, 2025. The net proceeds to the Company from the offering were $279.1 million after deducting offering costs of approximately $8.4 million.~~2020.

Acquisition History

We have scaled and intend to continue to scale our platform through the pursuit of selective acquisitions. We have completed multiple acquisitions since our inception, which we believe have expanded the channels that we serve and our distribution capabilities ~~and broadened~~as well as broadening our service ~~offering.~~offerings.

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On April 30, 2019, the Company completed the acquisition of the Paris-based telemedicine provider MedecinDirect in which MedecinDirect became a wholly-owned subsidiary of the Company. The aggregate merger consideration paid was $11.2 million with additional potential earnout consideration. On June 19, 2019, the Company made a $5.0 million minority investment in Vida Health which is accounted for under the cost method for investments.

On May 31, 2018, we completed our acquisition of Advance Medical for aggregate consideration of $351.7 million, which was comprised of 1,344,387 shares of our common stock valued at $68.6 million on May 31, 2018, and $283.1 million of net cash. Advance Medical is a leading global virtual healthcare provider offering a portfolio of virtual healthcare and expert medical service solutions.

Key Factors Affecting Our Performance

Number of Members. Our revenue growth rate and long-term profitability are affected by our ability to increase our number of Members because we derive a substantial portion of our revenue from subscription access fees via Client contracts that provide Members access to our professional provider network in exchange for a contractual based monthly fee. Membership increased by approximately ~~12.2~~14.8 million Members to 51.5 million from December 31, ~~2018~~2019 through ~~September~~June 30, ~~2019.~~2020.

Number of Visits. We also recognize revenue in connection with the completion of a general medical visit, expert medical service and other specialty visits for certain of our contracts. Accordingly, our visit revenue, or visit fees, generally increase as the number of visits increase. Visit fee revenue is driven primarily by the number of Clients, the number of Members in a Client’s population, Member utilization of our provider network services and the contractually negotiated prices of our services. We believe that increasing our current Member utilization rate and increasing penetration further into existing and new health plan Clients is a key objective in order for our Clients to realize tangible healthcare savings with our service. Visits increased by ~~45%~~204% or ~~287,000~~1.8 million to approximately ~~928,000~~2.7 million for the quarter ended ~~September~~June 30, ~~2019~~2020 compared to the same period in ~~2018.~~2019. The increase in visits is reflective of our ability to secure new clients as well as the surge in demand for our services associated with COVID-19. Visits increased by ~~63%~~144% or ~~1,119,000~~2.8 million to approximately ~~2,899,000~~4.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the same period in ~~2018, including 474,000 visits from Advance Medical.~~2019.

Seasonality. We typically experience the strongest increases in consecutive quarterly revenue during the fourth and first quarters of each year, which coincides with traditional annual benefit enrollment seasons. In particular, as a result of many Clients’ introduction of new services at the very end of the current year, or the start of each year, the majority of our new Client contracts have an effective date of January 1. Therefore, while Membership increases, utilization is dampened until service delivery ramps up over the course of the year. ~~Additionally, o~~Our business also has become more diversified across services, channels and geographies. As a result, we have seen a diversification of client start dates, resulting from our health plan expansions, cross sales of new services, international growth, and mid-market employer growth, all of which are not constrained by a calendar year start.

~~Additionally, as~~As a result of national seasonal cold and flu trends, we typically experience our highest level of visit fees during the first and fourth quarters of each year when compared to other quarters of the year. Conversely, the second quarter of the year has historically been the period of lowest utilization of our provider network services relative to the other quarters of the year. We experienced a surge in demand for our services in March of 2020 associated with the COVID-19 global pandemic that continued during the quarter-end June 30, 2020 and as a result we anticipate that this will alter our historical seasonal utilization trends during 2020. See “Risk Factors—Risks Related to Our Business—Our quarterly results may fluctuate significantly, which could adversely impact the value of our common stock.” included in our Form 10-K for the year ended December 31, ~~2018~~2019 filed with the SEC.

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Critical Accounting Policies and Estimates

Our discussion and analysis of our results of operations, liquidity and capital resources are based on our condensed consolidated financial statements which have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, accounts receivable, accounting for business combinations, goodwill, intangible assets, long-lived assets, capitalized development costs, earnout, income taxes, lease liabilities, loss contingencies and the value of securities underlying stock-based compensation. We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from our estimates and could have a significant adverse effect on our results of operations and financial position. For a discussion of our critical accounting policies and estimates see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual ~~Report. Except as noted in “Note 2 – Basis of Presentation and Principles of Consolidation” and “Note 7 – Leases” of the Notes to the Consolidated Financial Statements of this Quarterly~~ Report ~~on Form 10-Q,~~and there have been no material changes to our critical accounting policies during ~~2019.~~2020.

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Consolidated Results of Operations

The following table sets forth our consolidated statement of operations data for the quarters ended June 30, 2020 and ~~nine months ended September 30,~~ 2019 ~~and 2018~~ and the dollar and percentage change between the respective periods:


	Quarter Ended September 30,								Nine Months Ended September 30,								Quarter Ended June 30,								Six Months Ended June 30,
	2019		2018						2019		2018						2020		2019						2020		2019
	$		$		Variance		%		$		$		Variance		%(a)		$		$		Variance		%		$		$		Variance		%(a)
Revenue	$	137,969	$	110,962	$	27,007	24	%	$	396,818	$	295,166	$	101,652	34	%	$	241,030	$	130,276	$	110,754	85	%	$	421,829	$	258,849	$	162,980	63	%
Expenses:
Cost of revenue		42,799		34,167		8,632	25	%		129,110		88,707		40,403	46	%
Cost of revenue (exclusive of depreciation and amortization shown separately below)																		90,780		41,634		49,146	118	%		163,162		86,311		76,851	89	%
Operating expenses:
Advertising and marketing		31,321		21,668		9,653	45	%		84,341		61,554		22,787	37	%		47,578		26,616		20,962	79	%		80,093		53,020		27,073	51	%
Sales		16,120		16,303		(183)	-1	%		48,164		44,645		3,519	8	%		18,687		15,832		2,855	18	%		36,627		32,044		4,583	14	%
Technology and development		15,746		13,577		2,169	16	%		48,398		40,829		7,569	19	%		23,029		16,665		6,364	38	%		42,286		32,652		9,634	30	%
Legal and regulatory		1,634		807		827	102	%		5,239		2,491		2,748	110	%		2,232		2,019		213	11	%		3,454		3,605		(151)	(4)	%
Acquisition and integration related costs		1,995		1,588		407	26	%		4,143		8,957		(4,814)	-54	%		1,627		1,136		491	43	%		5,291		2,148		3,143	146	%
Gain on sale		—		(1,430)		1,430	-100	%		—		(5,500)		5,500	-100	%
General and administrative		38,681		30,314		8,367	28	%		113,212		80,455		32,757	41	%		54,383		38,549		15,834	41	%		99,503		74,531		24,972	34	%
Depreciation and amortization		9,617		9,746		(129)	-1	%		29,065		26,045		3,020	12	%		9,893		9,848		45	0	%		19,603		19,448		155	1	%
Total expenses		157,913		126,740		31,173	25	%		461,672		348,183		113,489	33	%		248,209		152,299		95,910	63	%		450,019		303,759		146,260	48	%
Loss from operations		(19,944)		(15,778)		(4,166)	26	%		(64,854)		(53,017)		(11,837)	22	%		(7,179)		(22,023)		14,844	(67)	%		(28,190)		(44,910)		16,720	(37)	%
Loss on extinguishment of debt																		7,751		0		7,751	N/M	%		7,751		0		7,751	N/M	%
Interest expense, net		7,700		7,666		34	0	%		21,432		19,449		1,983	10	%		13,151		7,211		5,940	82	%		22,454		13,732		8,722	64	%
Net loss before taxes		(27,644)		(23,444)		(4,200)	18	%		(86,286)		(72,466)		(13,820)	19	%		(28,081)		(29,234)		1,153	(4)	%		(58,395)		(58,642)		247	0	%
Income tax benefit		(7,298)		(180)		(7,118)	N/M	%		(6,466)		(261)		(6,205)	N/M	%
Income tax (benefit) expense																		(2,399)		90		(2,489)	N/M	%		(3,110)		832		(3,942)	N/M	%
Net loss	$	(20,346)	$	(23,264)	$	2,918	-13	%	$	(79,820)	$	(72,205)	$	(7,615)	11	%	$	(25,682)	$	(29,324)	$	3,642	(12)	%	$	(55,285)	$	(59,474)	$	4,189	(7)	%

~~N/M – Not meaningful~~

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EBITDA and Adjusted EBITDA

The following table reconciles net loss to EBITDA and Adjusted EBITDA for the quarters and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:


	Quarter Ended				Nine Months Ended				Quarter Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Net loss	$	(20,346)	$	(23,264)	$	(79,820)	$	(72,205)	$	(25,682)	$	(29,324)	$	(55,285)	$	(59,474)
Add:
Loss on extinguishment of debt										7,751		0		7,751		0
Interest expense, net		7,700		7,666		21,432		19,449		13,151		7,211		22,454		13,732
Income tax benefit		(7,298)		(180)		(6,466)		(261)
Income tax (expense)/benefit										(2,399)		90		(3,110)		832
Depreciation expense		982		854		2,701		3,118		860		856		1,711		1,719
Amortization expense		8,635		8,892		26,364		22,927		9,033		8,992		17,892		17,729
EBITDA(1)		(10,327)		(6,032)		(35,789)		(26,972)		2,714		(12,175)		(8,587)		(25,462)
Stock-based compensation		17,354		12,195		48,245		31,086		21,928		17,368		40,243		30,891
Gain on sale		—		(1,430)		—		(5,500)
Acquisition and integration related costs		1,995		1,588		4,143		8,957		1,627		1,136		5,291		2,148
Adjusted EBITDA(1)	$	9,022	$	6,321	$	16,599	$	7,571	$	26,269	$	6,329	$	36,947	$	7,577

(1)	Non-GAAP Financial Measures:

To supplement our financial information presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, we use EBITDA and Adjusted EBITDA, which are non-U.S. GAAP financial measures to clarify and enhance an understanding of past performance. We believe that the presentation of these financial measures enhances an investor’s understanding of our financial performance. We further believe that these financial measures are useful financial metrics to assess our operating performance from period-to-period by excluding certain items that we believe are not representative of our core business. We use certain financial measures for business planning purposes and in measuring our performance relative to that of our competitors. We utilize Adjusted EBITDA as the primary measure of our performance.

EBITDA consists of net loss before interest, foreign exchange gain or loss, taxes, loss on extinguishment of debt, depreciation and amortization. We believe that making such adjustment provides investors meaningful information to understand our results of operations and the ability to analyze financial and business trends on a period-to-period basis.

Adjusted EBITDA consists of net loss before interest, foreign exchange gain or loss, taxes, loss on extinguishment of debt, depreciation, amortization, stock-based compensation, ~~gain on sale~~ and acquisition and integration related costs. We believe that making such adjustment provides investors meaningful information to understand our results of operations and the ability to analyze financial and business trends on a period-to-period basis.

We believe both financial measures are commonly used by investors to evaluate our performance and that of our competitors. However, our use of the term EBITDA and Adjusted EBITDA may vary from that of others in our industry. Neither EBITDA nor Adjusted EBITDA should be considered as an alternative to net loss before taxes, net loss, loss per share or any other performance measures derived in accordance with U.S. GAAP as measures of performance.

EBITDA and Adjusted EBITDA have important limitations as analytical tools and you should not consider them in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:

●

EBITDA and Adjusted EBITDA do not reflect the significant interest expense on our ~~debt;~~debt

●

EBITDA and Adjusted EBITDA eliminate the impact of income taxes on our results of operations;

●

EBITDA and Adjusted EBITDA do not reflect the loss on extinguishment of debt;

●

Adjusted EBITDA does not reflect the significant acquisition and integration related costs related to mergers and acquisitions;

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●

~~Adjusted EBITDA does not reflect the significant gain on sale of certain non-core business contracts;~~

●

Adjusted EBITDA does not reflect the significant non-cash stock compensation expense which should be viewed as a component of recurring operating costs; and

●

other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do, limiting the usefulness of EBITDA and Adjusted EBITDA as comparative measures.

In addition, although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and both EBITDA and Adjusted EBITDA do not reflect any expenditures for such replacements.

We compensate for these limitations by using EBITDA and Adjusted EBITDA along with other comparative tools, together with U.S. GAAP measurements, to assist in the evaluation of operating performance. Such U.S. GAAP measurements include net loss, net loss per share and other performance measures.

In evaluating these financial measures, you should be aware that in the future we may incur expenses similar to those eliminated in this presentation. Our presentation of EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.

Consolidated Results of Operations Discussion

We completed our acquisition of MedecinDirect on April 30, ~~2019 and Advance Medical on May 31, 2018.~~2019. The results of operations of the aforementioned ~~acquisitions have~~acquisition has been included in our unaudited consolidated financial statements included in this Quarterly Report from the date of ~~each~~ acquisition.

Revenue. Total revenue was ~~$138.0~~$241.0 million for the quarter ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$111.0~~$130.3 million during the quarter ended ~~September~~June 30, ~~2018,~~2019, an increase of ~~$27.0~~$110.8 million, or ~~24%, with~~85% largely reflecting organic ~~growth reflecting a 24% increase.~~growth. Total revenue was ~~$396.8~~$421.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$295.2~~$258.9 million during the ~~nine months~~quarter ended ~~September~~June 30, ~~2018,~~2019, an increase of ~~$101.6~~$162.9 million, or ~~34%~~63%, ~~with~~which also largely reflects organic ~~growth reflecting a 23% increase.~~growth. The primary increase ~~in revenue~~ for both the ~~nine~~quarter and six months ended ~~2019~~2020 was substantially driven by ~~the acquisition of Advance Medical and MedecinDirect contributing $37.2 million for the nine months ended September 30, 2019, and~~ an increase in new Clients and the number of new Members generating additional subscription access ~~fees.~~fees and an increase in volume associated with the COVID-19 pandemic. Subscription access fee revenue increased to ~~$119.1~~$182.2 million, or ~~23%~~64% for the quarter ended ~~September~~June 30, ~~2019.~~2020. Subscription access fee revenue increased to ~~$336.3~~$319.2 million, or ~~36%~~47% for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The increase in subscription access fees was due to the addition of new Clients and direct-to-consumer members, as the number of paid Members increased by ~~28%~~92% from ~~September 30, 2018 to September~~June 30, 2019 ~~as well as the aforementioned Advance Medical acquisition.~~to June 30, 2020. Revenue from U.S. subscription access fees was ~~$92.1~~$152.0 million for the quarter ended ~~September~~June 30, ~~2019~~2020 compared to ~~$72.5~~$85.6 million for the quarter ended ~~September~~June 30, ~~2018~~2019 and was ~~$258.6~~$260.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$198.6~~$166.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. We generated ~~$27.0~~$30.2 million of international subscription access fees for the quarter ended ~~September~~June 30, ~~2019~~2020 and ~~$24.1~~$25.7 million for the quarter ended ~~September~~June 30, ~~2018~~2019 and ~~$77.7~~$59.3 million of international subscription access fees for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~$49.5~~$50.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019, which includes contributions from the MedecinDirect acquisition.

We completed approximately ~~928,000~~2.8 million visits, representing ~~$18.8~~$58.9 million of visit fees for the quarter ended ~~September~~June 30, ~~2019,~~2020, compared to approximately ~~641,000~~908,000 visits, representing ~~$14.4~~$19.0 million of visit fees, for the quarter ended June 30, 2019, an increase of $39.8 million, or 209%. The increase in visit fees is associated with the aforementioned increase in paid Members as well as the impact of COVID-19. We completed approximately 4.8 million visits, representing $102.6 million of visit fees for the six months ended June 30, 2020, compared to approximately 1,971,000 visits, representing $41.7 million of visit fees during the ~~quarter~~six months ended ~~September~~June 30, ~~2018,~~2019, an increase of ~~$4.4~~$60.9 million, or 31%. We completed approximately 2,899,000 visits, representing $60.5 million of visit fees for the nine months ended September 30, 2019, compared to approximately 1,780,000 visits, representing $47.1 million of visit fees during the nine months ended September 30, 2018, an increase of $13.4 million, or 29%146%.

Cost of Revenue. Cost of revenue was ~~$42.8~~$90.8 million for the quarter ended ~~September~~June 30, ~~2019~~2020 compared to ~~$34.2~~$41.6 million for the quarter ended ~~September~~June 30, ~~2018,~~2019, an increase of ~~$8.6~~$49.1 million, or ~~25%~~118%. ~~The~~Cost of revenue was $163.2 million for the six months ended June 30, 2020 compared to $86.3 million for the six months ended June 30, 2019, an increase ~~was~~of $76.9 million, or 89%. These increases were primarily due to increased general medical visits and behavioral health visits resulting in increased provider fees, additional incentive fees paid to physicians and physician network operation center ~~costs. Cost~~costs to service the aforementioned increases in revenue. The cost of revenue ~~was $129.1~~includes additional investments in capacity expansion associated with the global outbreak of COVID-19 of $2.2 million and $6.2 million for the ~~nine~~quarter and six months ended ~~September~~June 30, 2019 compared to $88.7 million for the nine months ended September 30, 2018, an increase of $40.4 million, or 46%. The increase for the nine months periods was primarily due to $18.7 million in costs associated with Advance Medical services for the nine months ended2020, respectively.

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~~September 30, 2019 and increased general medical visits resulting in increased provider fees, and physician network operation center costs.~~

Advertising and Marketing Expenses. Advertising and marketing expenses were ~~$31.3~~$47.6 million for the quarter ended ~~September~~June 30, ~~2019~~2020 compared to ~~$21.7~~$26.6 million for the quarter ended ~~September~~June 30, ~~2018,~~2019, an increase of ~~$9.6~~$21.0 million, or ~~45%~~79%. This increase primarily consisted of increased digital advertising, member engagement and acquisition initiatives, and sponsorship of professional organizations ~~and trade shows~~ of ~~$8.0~~$19.9 million and increases in employee-related expenses and others of ~~$1.6~~$1.1 million. Advertising and marketing expenses were ~~$84.3~~$80.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$61.6~~$53.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, an increase of ~~$22.7~~$27.0 million, or ~~37%~~51%. ~~Including the impact from Advance Medical, this~~This increase primarily consisted of increased digital advertising, member engagement ~~and acquisition~~ initiatives, sponsorship of professional organizations ~~and trade shows~~ of ~~$18.0~~$24.3 million, ~~and increases in~~as well as increased employee-related expenses ~~and others~~ of ~~$4.7~~$2.7 million.

Sales Expenses. Sales expenses were ~~$16.1~~$18.7 million for the quarter ended ~~September~~June 30, ~~2019~~2020 compared to ~~$16.3~~$15.8 million for the quarter ended ~~September~~June 30, 2018, a decrease of $0.2 million, or 1%. This decrease primarily consisted of increased staffing and sales commissions of $0.2 million and a decrease to other sales expenses of $0.4 million. Sales expenses were $48.1 million for the nine months ended September 30, 2019, ~~compared to $44.6 million for the nine months ended September 30, 2018,~~ an increase of ~~$3.5~~$2.9 million, or 8%18%. ~~Including the impact from Advance Medical, this~~This increase primarily consisted of increased staffing and sales commissions of ~~$3.2~~$4.3 million offset by a decrease to other sales expenses, such as conferences and travel of $1.4 million. Sales expenses were $36.6 million for the six months ended June 30, 2020 compared to $32.0 million for the six months ended June 30, 2019, an increase of $4.6 million, or 14%. This increase primarily consisted of increased staffing and sales commissions of $6.6 million offset by a decrease to other sales expenses of ~~$0.3 million.~~$2.0 million

Technology and Development Expenses. Technology and development expenses were ~~$15.7~~$23.0 million for the quarter ended ~~September~~June 30, ~~2019~~2020 compared to ~~$13.6~~$16.7 million for the quarter ended ~~September~~June 30, ~~2018,~~2019, an increase of ~~$2.1~~$6.3 million, or ~~16%~~38%. This increase resulted primarily from hiring additional personnel totaling ~~$1.5~~$4.1 million and other professional expenses of ~~$0.6~~$2.2 million. Technology and development expenses were ~~$48.4~~$42.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$40.8~~$32.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, an increase of ~~$7.6~~$9.6 million, or ~~19%~~29%. This increase resulted primarily from hiring additional personnel totaling ~~$5.8~~$5.9 million and increases in other expenses of ~~$1.7~~$3.7 million.

Legal and Regulatory Expenses. Legal and regulatory expenses were ~~$1.6~~$2.2 million for the quarter ended ~~September~~June 30, ~~2019~~2020 and consistent when compared to ~~$0.8~~$2.0 million for the quarter ended ~~September~~June 30, ~~2018,~~2019, an increase of ~~$0.8 million, or 102%. Legal and regulatory expenses were $5.2 million for the nine months ended September 30, 2019 compared to $2.5 million for the nine months ended September 30, 2018, an~~$0.2 million. This increase ~~of $2.7 million, or 110%. The increase in 2019 in both periods~~ resulted primarily from increased expenses to support litigation activities. Legal and regulatory expenses were $3.5 million for the six months ended June 30, 2020 and consistent when compared to $3.6 million for the six months ended June 30, 2019, a decrease of $0.1 million. This decrease was primarily driven by the timing of costs associated with litigation activities.

Acquisition and Integration Related Costs. Acquisition and integration related costs, incurred primarily in connection with integration activities of prior acquisitions as well as costs associated with the ~~Advance Medical and Best Doctors integrations,~~In Touch Technologies, Inc. acquisition, were ~~$2.0 million for the quarter ended September 30, 2019 compared to~~ $1.6 million for the quarter ended ~~September~~June 30, ~~2018,~~2020 compared to $1.1 million for the quarter ended June 30, 2019, an increase of ~~$0.4 million, which primarily represents the costs associated with the acquisition and integration of Advance Medical.~~$0.5 million. Acquisition and integration related costs, incurred ~~primarily~~ in connection with ~~the Advance Medical and Best Doctors integrations,~~these acquisitions, were ~~$4.1~~$5.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$9.0~~$2.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018, a decrease of $4.9 million, which primarily represents the~~2019. The 2020 and 2019 acquisition and integration related costs ~~associated with the abandonment of the corporate office lease of Best Doctors~~represent investment banking, financing, legal, accounting, consultancy, integration, fair value changes related to contingent consideration and certain other non-recurring transaction costs ~~associated with the acquisition of Advance Medical.~~related to mergers and acquisitions.

General and Administrative Expenses. General and administrative expenses were ~~$38.9~~$54.4 million for the quarter ended ~~September~~June 30, ~~2019~~2020 compared to ~~$30.3~~$38.5 million for the quarter ended ~~September~~June 30, ~~2018,~~2019, an increase of $8.6 million, or 28%. This increase was driven primarily by an increase in employee-related expenses of approximately $9.7 million resulting from growth in total employee headcount to 2,386 at September 30, 2019 as compared to 2,032 employees at September 30, 2018 primarily from the impact of the Advance Medical acquisitions. Other expenses, which include office-related charges, professional fees and bank charges, decreased by $1.1 million for the quarter ended September 30, 2019 as compared to September 30, 2018. General and administrative expenses were $113.4 million for the nine months ended September 30, 2019 compared to $80.5 million for the nine months ended September 30, 2018, an increase of $32.9$15.8 million, or 41%. This increase was driven primarily by an increase in employee-related expenses of approximately ~~$27.1~~$7.2 million resulting from growth in total employee headcount to ~~2,386~~2,727 at ~~September~~June 30, ~~2019~~2020 as compared to ~~2,032~~2,256 employees at ~~September~~June 30, ~~2018~~2019 reflecting increased employee costs including to support the increase volume of activities due to COVID-19. Other expenses, such as office-related charges, professional fees and bank charges, increased by $8.6 million for the quarter ended June 30, 2020 as compared to June 30, 2019. . General and administrative expenses were $99.5 million for the six months ended June 30, 2020 compared to $74.5 million for the six months ended June 30, 2019, an increase of $25.0 million, or 34%. This increase was driven primarily by an increase in employee-related expenses of approximately $11.8 million resulting from growth in total employee headcount including to support the ~~impact~~increase volume of ~~the Advance Medical acquisitions.~~activities due to COVID-19. Other expenses, which include office-related charges, professional fees and bank charges, increased by ~~$5.8~~$13.1 million for the ~~nine~~six months ended June 30, ~~2019~~2020 as compared to ~~September~~the six months ended June 30, ~~2018,~~2019, to support the growth of our business.

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Depreciation and Amortization. Depreciation and amortization ~~was $9.6~~were $9.9 million for the quarter ended ~~September~~June 30, ~~2019~~2020 and consistent when compared to ~~$9.7~~$9.8 million for the quarter ended ~~September~~June 30, ~~2018, a decrease~~2019, an increase of $0.1 ~~million, or 1%.~~million. Depreciation and amortization was ~~$29.0~~$19.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and consistent when compared to ~~$26.0~~$19.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, an increase of ~~$3.0~~$0.2 million, or ~~12%~~1%. ~~The increase was primarily due to the impact from acquisitions.~~ Additional amortization expenses primarily related to an increase in acquisition-related intangible assets that increased from ~~$306.6~~$315.4 million at ~~September~~June 30, ~~2018~~2019 to ~~$313.3~~$325.9 million at ~~September~~June 30, ~~2019~~2020 and an increase of depreciation expense on an increased base of depreciable fixed assets that increased from ~~$21.8~~$23.7 million at ~~September~~June 30, ~~2018~~2019 to ~~$24.9~~$26.7 million at ~~September~~June 30, ~~2019.~~2020.

Interest Expense, Net. Interest expense, net consists of interest costs and amortization of debt discount associated with our Convertible Senior Notes, interest income from short-term investments in marketable securities ~~as well as~~and foreign exchange gain or loss. Interest expense, net was ~~$7.7~~$13.2 million for the quarter ended ~~September~~June 30, 2020 compared to ~~$7.7~~$7.2 million for the quarter ended ~~September~~June 30, ~~2018.~~2019. Interest expense, net was ~~$21.4~~$22.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$19.4~~$13.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The ~~increase~~Company increased its Convertible Senior Notes outstanding to approximately $1,334.0 million at June 30, 2020 from approximately $562.0 million at June 30, 2019. These increases in net interest expense in ~~2019~~2020 reflects ~~costs~~the higher outstanding debt, interest expense accretion associated with our Convertible Senior Notes and, lower interest income from short-term investments, as well as a higher foreign exchange loss. In conjunction with the issuance of Convertible Senior Notes in May 2020, the Company also exchanged approximately $228.0 million of existing outstanding Convertible Senior Notes that were to mature in 2022 and recorded a charge associated with the ~~Convertible Senior Notes issued in May 2018.~~loss on extinguishment of $7.7 million during the quarter-ended June 30, 2020.

Income tax ~~benefit~~(benefit) expense. Income tax benefit was ~~$7.3~~$(2.4) million for the quarter ended ~~September~~June 30, ~~2019~~2020 compared to ~~$0.2~~an income tax expense $0.1 million for the quarter ended ~~September 20, 2018~~June 30, 2019 and ~~$6.5~~is primarily reflective of excess stock compensation benefits in the second quarter of 2020 and the jurisdiction mix of income. Income tax benefit was $(3.1) million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$0.3~~an income tax expense $0.8 million for the ~~nine~~six months ended ~~September 30, 2018. The quarter and nine months ended September~~June 30, 2019 ~~reflects a $8.1 million income tax benefit associated with~~and is primarily reflective of excess stock compensation benefits in the ~~anticipated intercompany transfer~~first six months of ~~a U.S. subsidiary from a foreign owned subsidiary to~~2020 and the ~~U.S. parent.~~jurisdiction mix of income.

Liquidity and Capital Resources

The following table presents a summary of our cash flow activity for the periods set forth below:


	Nine Months Ended				Six Months Ended
	September 30,				June 30,
	2019		2018		2020		2019
Consolidated Statements of Cash Flows Data
Net cash provided by (used in) operating activities	$	11,747	$	(7,336)
Net cash provided by (used in) investing activities		15,466		(215,148)
Net cash provided by (used) in operating activities					$	29,230	$	(1,743)
Net cash (used in) provided by investing activities						(21,590)		2,272
Net cash provided by financing activities		25,053		638,163		788,278		15,900
Total	$	52,266	$	415,679	$	795,918	$	16,429

Historically, we have financed our operations primarily through public and private sales of equity securities, debt issuance and bank borrowings. ~~For the nine months ended September~~

Our principal sources of liquidity are cash and cash equivalents totaling $1,308.8 million as of June 30, ~~2019,~~2020, which were held for working capital purposes. Our cash and cash equivalents are comprised of money market funds and marketable securities. Additionally, we have ~~generated positive cash flows from operations.~~short term marketable securities of $2.9 million as of June 30, 2020.

On April 30, 2019, we completed the acquisition of MedecinDirect. The purchase price was $11.2 million cash with additional potential earnout consideration. We also made a $5.0 million minority investment in Vida Health on June 19, 2019.

~~On July 26, 2018, we completed~~Cash Provided by (Used in) Operating Activities

For the ~~July Offering~~six months ended June 30, 2020, cash provided by operating activities was $29.2 million compared to a use of cash of $1.7 million for the prior year period. The improvement in ~~which we issued~~cash flows resulted primarily from higher earnings excluding non-cash items, as noted by the increase in EBITDA and ~~sold 5,000,000 shares of common stock, at an issuance price of $66.28 per share. We received~~Adjusted EBITDA, as the Company gained operating leverage on its cash expenses while its revenues increased. Additionally, net ~~proceeds of $330.9 million after deducting offering expenses of $0.5 million.~~

On May 31, 2018 we completed the acquisition of Advance Medical. The purchase price was $351.7 million consisting of $283.1 million of net cash, and 1.3 million shares of Teladoc Health’s common stock valued at approximately $68.6 million.

On May 8, 2018, we issued, at par value, $287.5 million aggregate principal amount of 1.375% convertible senior notes due 2025 (the “2025 Notes”). The 2025 Notes bear cash interest at a rate of 1.375% per year, payable semi-annually in arrears on May 15 and November 15 of each year. The 2025 Notes will mature on May 15, 2025. The net proceedsworking capital decreased compared to the ~~Company from the offering were $279.1 million after deducting the initial purchasers’ discounts, commissions and offering expenses.~~prior year period.

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Our principal sources of liquidity are cash and cash equivalents totaling $475.2 million as of September 30, 2019, which were held for working capital purposes. Our cash and cash equivalents are comprised of money market funds and marketable securities. Additionally, we have short term marketable securities of $15.6 million as of September 30, 2019.

Cash (Used in) Provided by ~~(Used in) Operating~~Investing Activities

~~For~~Cash used in investing activities was $21.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019, cash provided by operating~~2020. Cash used in investing activities ~~was $11.7 million. The positive cash flows resulted primarily from our net loss~~consisted of ~~$79.8~~the purchases of property and equipment totaling $1.6 million, ~~changes~~investments in ~~deferred income tax~~internally developed capitalized software of ~~$10.3~~$6.5 million, and ~~adjusted for~~$13.5 million of pre-funding associated with the effect of net changes in working capital and other balance sheet accounts resulting in cash outflows of approximately $1.4 million. These are fully offset by depreciation and amortization of $33.8 million, allowance for doubtful accounts of $1.7 million, stock-based compensation of $48.3 million and accretion of interest of $19.4 million.

For the nine months ended September 30, 2018, cash used in operating activities was $7.3 million. The negative cash flows resulted primarily from our net loss of $72.2 million, adjusted for gain on sale of assets of $5.5 million, deferred income tax of $1.9 million, partially offset by depreciation and amortization of $26.0 million, allowance for doubtful accounts of $1.6 million, stock-based compensation of $31.1 million and accretion of interest of $13.6 million.

The increase in cash provided by operating activities for the nine months ended September 30, 2019 compared to the prior year period was primarily the result of our ability to continue to increase our revenue dollars while gaining operating leverage on our cash related operating expenses.

~~Cash Provided by (Used in) Investing Activities~~InTouch Technologies, Inc. acquisition.

Cash provided by investing activities was ~~$15.5~~$2.2 million for the ~~nine~~six months ended ~~September~~June 30, 2019. Cash provided by investing activities consisted of maturities of short-term marketable securities of ~~$39.2~~$22.7 million, net of sales, offset by the purchases of property and equipment totaling ~~$2.8~~$1.3 million, investments in internally developed capitalized software of ~~$4.7~~$3.0 million, investment in securities of $5.0 million and acquisition of businesses of $11.2 million.

Cash used in investing activities was $215.1 million for the nine months ended September 30, 2018. Cash used in investing activities consisted of the acquisition of Advance Medical of $282.5 million, purchases of property and equipment totaling $2.7 million and investments in internally developed capitalized software of $2.7 million, offset by maturities of short-term marketable securities of $67.3 million, net of sales, and sales of assets of $5.5 million.

Cash Provided by Financing Activities

Cash provided by financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~$25.1~~$788.3 million. Cash provided by financing activities consisted of ~~$24.8~~$975.9 million of net cash proceeds from the issuance of the 2027 Notes, $33.5 million of proceeds from the exercise of employee stock options, $2.5 million of proceeds from employee stock purchase plan, and $4.5 million of timing associated with net cash proceeds for tax withholding for stock-based compensation, offset by $228.1 million of cash used in the repurchased of 2022 Notes.

Cash provided by financing activities for the six months ended June 30, 2019 was $15.9 million. Cash provided by financing activities consisted of $15.7 million of proceeds from the exercise of employee stock options, $1.9 million of proceeds from employee stock purchase plan, $0.2 million of contingent consideration fair value adjustment, offset by payment of ~~$1.6~~$1.9 million for tax withholding for ~~options exercised.~~

Cash provided by financing activities for the nine months ended September 30, 2018 was $638.2 million. Cash provided by financing activities consisted of $279.1 million of net cash proceeds from the issuance of the 2025 Notes, $330.9 million of net cash proceeds from the July Offering, $26.2 million of proceeds from the exercise of employee stock options, $0.6 million of cash proceeds for tax withholding for options exercised and $1.4 million of proceeds from the employee stock purchase plan.stock-based compensation.

Looking Forward

At ~~September~~June 30, ~~2019,~~2020, the Company’s cash and short-term investments were ~~$490.9~~$1,311.8 million. For the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, we have experienced positive Adjusted EBITDA and for the full year 2020 we anticipate positive Adjusted EBITDA ~~results for 2019.~~as well as positive free cash flow.

We believe that our existing cash and cash equivalents and short-term marketable securities will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements will depend on many factors including our growth rate, contract renewal activity, number of visits, the timing and extent of spending to support product development efforts, our expansion of sales and marketing activities, the introduction of new and enhanced service offerings and the continuing market acceptance of telehealth. We may in the future enter into

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arrangements to acquire or invest in complementary businesses, services and technologies and intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition and results of operations would be adversely affected.

Shelf Registration Statements

We filed a shelf registration statement on Form S-3 under the Securities Act on September 30, 2016, which was declared effective October 5, 2016 (the “2016 Shelf”). Under the 2016 Shelf at the time of effectiveness, we had the ability to raise up to $300 million by selling common stock in addition to 2,000,000 shares of common stock eligible for resale by certain existing shareholders. We currently have the ability under the 2016 Shelf to raise up to approximately $168 million by selling common stock in addition to 400,000 shares of common stock eligible for resale by certain existing shareholders.

~~We filed~~ an automatically effective shelf registration statement on Form S-3 under the Securities Act on November 28, 2017 (the “2017 Shelf”). Under the 2017 Shelf at the time of effectiveness, we had the ability to raise up to $175 million by selling common stock in addition to 1,200,000 shares of common stock eligible for resale by certain shareholders. ~~We currently have the ability~~Following an offering in December 2017 there remained under the 2017 Shelf the ability to raise up to approximately $32 million by selling common stock in addition to 370,000 shares of common stock eligible for resale by certain existing shareholders.

On July 23, 2018, we filed an automatically effective universal shelf registration statement on Form S-3 under the Securities Act (the “2018 Shelf”). The 2018 Shelf registers the offering of securities, including common stock, preferred stock and debt securities, that we may issue from time to time in amounts to be determined, as well as the issuance of common stock by selling stockholders. Issuances of securities under the 2018 Shelf require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued. Our ability to issue securities is subject to market conditions and other factors impacting our borrowing capacity.

~~In July 2018, we successfully closed on our July Offering in which we issued and sold 5,000,000 shares~~31

Table of common stock, at an issuance price of $66.28 per share, and certain selling stockholders sold 263,740 shares of our common stock. We received net proceeds of $330.9 million after deducting offering expenses of $0.5 million.Contents

Indebtedness

We entered into a $10.0 million ~~New~~ Revolving Credit Facility in 2017. The ~~New~~ Revolving Credit Facility is available for working capital and other general corporate purposes. ~~We have maintained the New Revolving Credit Facility and, there~~There was no amount outstanding as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018. The~~2019 and the Company utilized ~~$1.4 million and~~ $2.2 million of letters of credit for facility security deposits and credit card at ~~September~~both June 30, ~~2019~~2020 and December 31, ~~2018, respectively.~~2019. The Revolving Credit Facility was terminated pursuant to its terms effective July 14, 2020.

On May 19, 2020, we issued, at par value, $1,000.0 million aggregate principal amount of 1.25% convertible senior notes due 2027. The 2027 Notes bear cash interest at a rate of 1.25% per year, payable semi-annually in arrears on June 1 and December 1 of each year. The 2027 Notes will mature on June 1, 2027. The net proceeds to us from the offering were $975.9 million after deducting offering costs of approximately $24.1 million.

On May 8, 2018, we issued, at par value, $287.5 million aggregate principal amount of 1.375% convertible senior notes due 2025. The 2025 Notes bear cash interest at a rate of 1.375% per year, payable semi-annually in arrears on May 15 and November 15 of each year. The 2025 Notes will mature on May 15, 2025. The net proceeds to us from the offering were $279.1 million after deducting offering costs of approximately $8.4 million.

The 2025 Notes are senior unsecured obligations of ours and rank senior in right of payment to our indebtedness that is expressly subordinated in right of payment to the 2025 Notes; equal in right of payment to our liabilities that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities incurred by our subsidiaries.

In June 2017, we issued, at par value, $275 million aggregate principal amount of 3% convertible senior notes due 2022. The 2022 Notes bear cash interest at a rate of 3% per year, payable semi-annually in arrears on June 15 and December 15 of each year. The 2022 Notes will mature on December 15, 2022. The net proceeds to us from the offering were $263.7 million after deducting offering costs of approximately $11.3 million.

On May 14, 2020, the Company entered into privately negotiated agreements with certain holders of 2022 Notes to exchange 2022 Notes for shares of the Company’s common stock, together with cash, in private placement transactions pursuant to Section 4(a)(2) of the Securities Act. The closing of the Exchange Transactions occurred on May 19, 2020. In exchange for approximately $228.2 million aggregate principal amount of 2022 Notes, the Company paid approximately $231.1 million in cash (including accrued and unpaid interest and cash paid in lieu of fractional shares), together with an aggregate of approximately 3.9 million shares of its common stock. As a result of the Exchange Transactions, the Company recorded a charge associated with the loss on extinguishment of debt of $7.7 million during the quarter ended June 30, 2020.

Approximately $46.8 million aggregate principal amount of the 2022 Notes remains outstanding as of June 30, 2020.

The 2027, 2025 and 2022 Notes are senior unsecured obligations of ours and rank senior in right of payment to our indebtedness that is expressly subordinated in right of payment to the 2022 Notes; equal in right of payment to our liabilities that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other

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liabilities incurred by our subsidiaries.

See Note 11, “Convertible Senior Notes” of the Notes to the Consolidated Financial Statements of the Quarterly Report on Form 10-Q for additional information on the 2027, 2025 ~~Notes~~ and ~~the~~ 2022 Notes.

We were in compliance with all debt covenants at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

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Contractual Obligations and Commitments

The following summarizes our contractual obligations as of ~~September~~June 30, ~~2019:~~2020:


	Payment Due by Period											Payment Due by Period
			Less than		1 to 3		4 to 5		More than				Less than		1 to 3		4 to 5		More than
	Total		1 Year		Years		Years		5 Years		Total		1 Year		Years		Years		5 Years
Operating leases	$	37,936	$	6,943	$	11,728	$	10,259	$	9,006	$	40,457	$	7,750	$	14,696	$	11,822	$	6,189
Debt obligations under the Convertible Notes		562,495		—		274,995		—		287,500		1,334,271		0	$	46,771	$	287,500	$	1,000,000
Interest associated with the Convertible Notes		44,832		12,203		22,252		7,906		2,471		112,474		17,857	$	34,294	$	32,906	$	27,417
Total	$	645,263	$	19,146	$	308,975	$	18,165	$	298,977	$	1,487,202	$	25,607	$	95,761	$	332,228	$	1,033,606

Our existing office and hosting co-location facilities lease agreements provide us with the option to renew and generally provide for rental payments on a graduated basis. Our future operating lease obligations would change if we entered into additional operating lease agreements as we expand our operations and if we exercised the office and hosting co-location facilities lease options. The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions and the approximate timing of the transaction. Obligations under contracts that we can cancel without a significant penalty are not included in the table above.

Off-Balance Sheet Arrangements

During the periods presented, we did not have, nor do we currently have, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are therefore not exposed to the financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk and Foreign Exchange Risk

We do not have any floating rate debt including with our ~~New~~ Revolving Credit Facility as of ~~September~~June 30, ~~2019.~~2020. Cash equivalents that are subject to interest rate volatility represent our principal market risk. We do not expect cash flows to be affected to any significant degree by a sudden change in market interest rates.

We operate our business primarily within the United States and currently execute more than ~~80%~~86% of our transactions in U.S. dollars. We have not utilized hedging strategies with respect to such foreign exchange exposure. This limited foreign currency translation risk is not expected to have a material impact on our consolidated financial statements.

Concentrations of Risk and Significant Clients

Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, short-term marketable securities and accounts receivable. Although we deposit our cash with multiple financial institutions in U.S. and in foreign countries, our deposits, at times, may exceed federally insured limits. Our short-term marketable securities are comprised of a portfolio of diverse high credit rating instruments with maturity durations of one year or less.

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No Client represented over 10% of revenues for the quarters ended June 30, 2020 and ~~nine months ended September 30, 2019 and 2018.~~2019.

No Client represented over 10% of accounts receivable at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

Item 4. Controls and Procedures

Management’s Report on Internal Control over Financial Reporting

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the

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desired control objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of ~~September~~June 30, ~~2019.~~2020.

No changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended ~~September~~June 30, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company is subject to legal proceedings, claims and litigation arising in the ordinary course of its business. At ~~September~~June 30, ~~2019,~~2020, the Company is not aware of any pending or threatened litigation that would have a material adverse effect on its business, results of operations, cash flows or financial condition should such litigation be resolved unfavorably.

On December 12, 2018, a purported securities class action complaint (Reiner v. Teladoc Health, Inc., et.al.) was filed in the United States District Court for the Southern District of New York (the “SDNY”) against the Company and certain of the Company’s officers and a former officer. The complaint is brought on behalf of a purported class consisting of all persons or entities who purchased or otherwise acquired shares of the Company’s common stock during the period March 3, 2016 through December 5, 2018. The complaint asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on allegedly false or misleading statements and omissions with respect to, among other things, the alleged misconduct of one of the Company’s previous Executive Officers. The complaint seeks certification as a class action and unspecified compensatory damages plus interest and attorneys’ fees. The Company believes that the claims against the Company and its officers are without merit, and the Company and its named officers intend to defend the Company vigorously, including filing a motion to dismiss the complaint.

In addition, on June 21, 2019, a stockholder derivative lawsuit (Kreutter v. Gorevic, et al.) was filed in the SDNY against certain current and former directors and officers of the Company. The derivative lawsuit alleges that the named directors and officers breached their fiduciary duties to the Company in connection with factual assertions substantially similar to those in the purported securities class action complaint described above. The Company believes that the claims set forth in this stockholder derivative lawsuit are without merit.

On May 14, 2018, a purported class action complaint (Thomas v. Best Doctors, Inc.) was filed in the United States District Court for the District of Massachusetts against the Company’s wholly owned subsidiary, Best Doctors, Inc. The complaint alleges that on or about May 16, 2017, Best Doctors violated the U.S. Telephone Consumer Protection Act ~~(TCPA)~~(the “TCPA”) by sending unsolicited facsimiles to plaintiff and certain other recipients without the recipients’ prior express invitation or permission. The lawsuit seeks statutory damages for each violation, subject to trebling under the TCPA, and injunctive relief. The Company will vigorously defend the lawsuit and any potential loss is currently deemed to be immaterial.

Item 1A. Risk Factors

Other than the risk factor set forth below, there have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019. For a discussion of potential risks and uncertainties related to our Company see the information in Part I, Item 1A ("Risk Factors") of our Annual Report on Form 10-K for the year ended December 31, 2018 and Part II, Item 1.A (“Risk Factors”) of our Quarterly Report on Form 10-Q for the period ended September 30, 2019. There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 and our Quarterly Report on Form 10-Q for the period ended ~~September 30, 2019.~~March 31, 2020.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in the “Special Note Regarding Forward-Looking Statements” section in Part I, Item 2, of this Quarterly Report on Form 10-Q.

In March 2020, the World Health Organization declared COVID-19 a global pandemic. This contagious outbreak, which has continued to spread, and the related adverse public health developments, including orders to shelter-in-place, travel restrictions and mandated business closures, have adversely affected workforces, organizations, customers, economies and financial markets globally, leading to an economic downturn and increased market volatility. It has also disrupted the normal operations of many businesses, including ours.

This outbreak, as well as intensified measures undertaken to contain the spread of COVID-19, could cause disruptions and severely impact our business, including, but not limited to:

●

causing one or more of our Clients to file for bankruptcy protection or shut down;

●

reducing Client and Member subscription fees generated, as well as visit fees by other individuals, as a result of funding constraints related to loss of revenue or employment;

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●

negatively impacting collections of accounts receivable;

●

negatively impacting our ability to facilitate the provision of our services to Clients and other consumers; and

●

harming our business, results of operations and financial condition.

~~Item 5. Other Information~~We cannot predict with any certainty whether and to what degree the disruption caused by the COVID-19 pandemic and reactions thereto will continue, and expect to face difficulty accurately predicting our internal financial forecasts.

Our continued access to sources of liquidity also depend on multiple factors, including global economic conditions, the condition of global financial markets, the availability of sufficient amounts of financing and our operating performance. As of June 30, 2020, we had unused commitments under our revolving credit facility available to us of $10.0 million (without giving effect to approximately $2.2 million of letters of credit). However, the Revolving Credit Facility was terminated pursuant to its terms effective July 14, 2020. There is no guarantee that additional debt financing will be available in the future to fund our obligations, or that it will be available on commercially reasonable terms, in which case we may need to seek other sources of funding. In addition, the terms of the agreements governing our current indebtedness include, and any future debt agreements could include, restrictive covenants, which could restrict our business operations.

The outbreak also presents challenges as our entire workforce is currently working remotely and shifting to assisting new and existing Clients, Members and other consumers, who are also generally working remotely.

It is not possible for us to accurately predict the duration or magnitude of the adverse results of the outbreak and its effects on our business, results of operations or financial condition at this time, but such effects may be material. The COVID-19 pandemic may also have the effect of heightening many of the other risks identified in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019, such as those relating to our indebtedness, our need to generate sufficient cash flows to service our indebtedness and our ability to comply with the covenants contained in the agreements that govern our indebtedness.

On October 29, 2019, the Company entered into an amendment to its employment agreement with Jason Gorevic, its Chief Executive Officer, and amendments to each of the executive severance agreements with its other executive officers. The amendments are included as exhibits to this Form 10-Q. In each case, the respective amendment: (i) expressly subjects the executive officer’s compensation to the Company’s Executive Compensation Recovery Policy; (ii) expands the set of circumstances that would constitute a termination for “Cause” (as defined in the amendment); (iii) makes certain conforming changes across the class of executive officers to the definition of resignation for “Good Reason” (as defined in the applicable amendment); and (iv) corrects certain typographical errors in the original agreement. Additionally, the amendments make certain conforming changes to the post-termination severance benefits applicable to the executive officers other than Jason Gorevic, David Sides and Mala Murthy.

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Item 6. Exhibits

Exhibit

Index

Incorporated by Reference

Exhibit
Number

Exhibit Description

Form

File No.

Exhibit

Filing
Date

Filed
Herewith

Exhibit Description

Form

File No.

Exhibit

Filing
Date

Filed
Herewith

2.1

Agreement and Plan of Merger, dated January 11, 2020, by and among Teladoc Health, Inc., Jonata Sub One, Inc., Jonata Sub Two, Inc., InTouch Technologies, Inc. and Fortis Advisors LLC, as equity holder representative

8-K

001-37477

2.1

1/13/20

3.1

Sixth Amended and Restated Certificate of Incorporation of Teladoc, Inc.

8-K

001-37477

3.1

5/31/17

Sixth Amended and Restated Certificate of Incorporation of Teladoc, Inc.

8-K

001-37477

3.1

5/31/17

3.2

Certificate of Amendment to the Sixth Amended and Restated Certificate of Incorporation of Teladoc, Inc.

8-K

001-37477

3.1

6/1/18

Certificate of Amendment to the Sixth Amended and Restated Certificate of Incorporation of Teladoc, Inc.

8-K

001-37477

3.1

6/1/18

3.3

Second Certificate of Amendment to the Sixth Amended and Restated Certificate of Incorporation of Teladoc, Inc.

8-K

001-37477

3.1

8/10/18

Second Certificate of Amendment to the Sixth Amended and Restated Certificate of Incorporation of Teladoc, Inc.

8-K

001-37477

3.1

8/10/18

3.4

Fourth Amended and Restated Bylaws of Teladoc Health, Inc.

8-K

001-37477

3.1

2/25/19

Fourth Amended and Restated Bylaws of Teladoc Health, Inc.

8-K

001-37477

3.1

2/25/19

4.1

Indenture, dated as of May 19, 2020, by and between Teladoc Health, Inc. and Wilmington Trust, National Association.

8-K

001-37477

4.1

5/19/20

4.2

Form of Global 1.25% Convertible Senior Note due 2027 (included as Exhibit A to Exhibit 4.1).

8-K

001-37477

4.2

5/19/20

10.1

Executive Severance Agreement, dated July 30, 2019, by and between Teladoc Health, Inc. and David Sides.

Separation and Release of Claims Agreement, dated January 3, 2020, by and between Teladoc Health, Inc. and Peter McClennen.

10-Q

001-3747

10.1

4/29/20

10.2

Amendment No. 1 to Amended and Restated Executive Employment Agreement, dated October 29, 2019, by and between Teladoc Health, Inc. and Jason Gorevic.

Form of Performance Restricted Stock Unit Agreement under the Teladoc Health, Inc. 2015 Incentive Award Plan.

10-Q

001-3747

10.2

4/29/20

10.3

Amendment No. 1 to Executive Severance Agreement, date October 29, 2019, by and between Teladoc Health, Inc. and Michelle Bucaria.

Teladoc Health, Inc. Senior Leader Severance Plan, dated May 1, 2020.

8-K

001-37477

10.1

5/7/20

10.4

Amendment No. 1 to Executive Severance Agreement, date October 29, 2019, by and between Teladoc Health, Inc. and Lewis Levy.

Amendment No. 3 to Credit Agreement by and among Teladoc Health, Inc., Jefferies Finance LLC, as administrative agent and issuing bank, and the lenders party thereto, dated as of May 13, 2020.

8-K

001-37477

10.1

5/15/20

10.5

Amendment No. 1 to Executive Severance Agreement, date October 29, 2019, by and between Teladoc Health, Inc. and Mala Murthy.

21.1

Subsidiaries of the Registrant.

10.6

Amendment No. 1 to Executive Severance Agreement, date October 29, 2019, by and between Teladoc Health, Inc. and David Sides.

10.7

Amendment No. 1 to Executive Severance Agreement, date October 29, 2019, by and between Teladoc Health, Inc. and Andrew Turitz.

10.8

Amendment No. 1 to Executive Severance Agreement, date October 29, 2019, by and between Teladoc Health, Inc. and Adam Vandervoort.

31.1

Chief Executive Officer—Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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31.2

Chief Financial Officer—Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Chief Executive Officer—Certification pursuant to Rule13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Chief Financial Officer—Certification pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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10.9

Amendment No. 1 to Executive Severance Agreement, date October 29, 2019, by and between Teladoc Health, Inc. and Stephany Verstraete.

*

21.1

Subsidiaries of the Registrant.

10-Q

001-37477

21.1

7/31/19

31.1

Chief Executive Officer—Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*

31.2

Chief Financial Officer—Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*

32.1

Chief Executive Officer—Certification pursuant to Rule13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

**

32.2

Chief Financial Officer—Certification pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

**

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** Furnished herewith.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TELADOC HEALTH, INC.

Date: ~~October 30, 2019~~July 29, 2020	By:	/s/ JASON GOREVIC
	Name:	Jason Gorevic
	Title:	Chief Executive Officer

Date: ~~October 30, 2019~~July 29, 2020	By:	/s/ MALA MURTHY
	Name:	Mala Murthy
	Title:	Chief Financial Officer

4039


	Advance Medical
Purchase price, net of cash acquired	$	351,694
Less:
Accounts receivable		8,553
Property and equipment, net		1,326
Other assets		3,675
Client relationships		100,760
Non-compete agreements		1,540
Internal-use software		770
Trademarks		16,190
Favorable leases		203
Accounts payable		(361)
Deferred taxes		(22,714)
Other liabilities		(8,368)
Goodwill	$	250,120


	Nine Months Ended
Consolidated Statements of Cash Flows	September 30, 2019
Operating cash flows used for operating leases	$	5,981
Operating lease liabilities arising from obtaining right-of-use assets	$	4,817

Other Information
Weighted-average remaining lease term		6.25 yrs
Weighted-average discount rate		6.50%


	As of
Operating Leases:	September 30, 2019
2019	$	6,943
2020		5,961
2021		5,768
2022		5,685
2023 and thereafter		13,579
Sub-total		37,936
Less: imputed interest		6,911
Minimum lease payments	$	31,025