Item7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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, 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.

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. Our Clients on behalf of their employees or beneficiaries as well as direct-to consumer individuals (D2C) purchase our solutions to reduce their healthcare spending and offer convenient, affordable, high-quality healthcare to their employees or beneficiaries. Our network of physicians and other healthcare professionals, or our providers have the ability to generate meaningful income and deliver their services more efficiently with no administrative burden.

COVID-19 Update

We believe that favorable existing macro trends were accelerated by the impacts of the COVID-19 pandemic, driving greater consumer trial and use of virtual care, and increased adoption by employers, health plans, hospitals and health systems, and health care providers. In combination with the expansion of our capabilities, we believe that these trends present significant opportunities for virtual healthcare to address the most pressing, universal healthcare challenges through trusted solutions, such as ours, that deliver convenient, high quality care; empower consumers to manage and improve their health; and enable providers to offer their best care for their patients.

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business. The outbreak of COVID-19 in 2020 increased utilization of our telehealth services, but it is uncertain whether such increase in demand will continue. While the COVID-19 pandemic has not had a material adverse impact on our financial condition and results of operations to date, the future impact on our operational and financial performance will depend on certain developments, including the duration and spread of the pandemic, impact on our Clients and Members, impact on our sales cycles, and effect on our vendors, all of which are uncertain and cannot be predicted. Public and private sector policies and initiatives to reduce the transmission of COVID-19 and disruptions to our operations and the operations of our third-party suppliers, along with the related global slowdown in economic activity, may result in decreased revenues, decreased collections, and increased costs. Further, the economic effects of the COVID-19 pandemic have financially constrained some of our prospective and existing Clients’ healthcare spending, which may negatively impact our ability to acquire new Clients and our ability to renew subscriptions with or sell additional solutions to our existing Clients. We also may experience increased Member attrition to the extent our existing Clients’ reduce their respective workforces in response to economic conditions. In addition, due to our subscription-based business model, the effect of the COVID-19 pandemic may not be fully reflected in our revenue until future periods. It is possible that the COVID-19 pandemic, the measures taken by the governments and businesses affected and the resulting economic impact may materially and adversely affect our business, results of operations, cash flows and financial positions as well as our customers.

We have also taken measures in response to the COVID-19 pandemic, including temporarily closing our offices and implementing a work from home policy for our workforce; limiting capacity at our offices that have reopened; implementing additional safety policies and procedures for employees working in our offices that have reopened; suspending employee travel and in person meetings; and adjusting our supply chain and inventory levels. We may take

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further actions that alter our business operations as may be required by federal, state, local or foreign authorities or that we determine are in the best interests of our employees, Clients, Members and stockholders. The effects of these operational modifications are unknown and may not be realized until further reporting periods.

Revenue

We have a demonstrated track record of driving growth both organically and through acquisitions. We increased revenue 98% to $1,094.0 million in 2020, including an incremental $128.3 million from our InTouch Health acquisition and Livongo merger. Excluding the impact of the InTouch and Livongo acquisitions, revenue increased 75%, reflecting the acceleration of the adoption of virtual care stemming from the COVID-19 pandemic and the Company’s broad momentum to transform the healthcare experience. In 2019, revenue increased 32% to $553.3 million which included an incremental $33.2 million from our Advance Medical and MedecinDirect acquisitions.

For the year ended December 31, 2020, 79%, 19% and 2% of our revenue was derived from subscription access fees, visit fees and other, respectively. For both of the year ended December 31, 2019 and 2018, 84% and 16% of our revenue were derived from subscription access fees and visit fees. We believe our continued strong subscription fee revenue is mainly representative of the value proposition we provide the broader healthcare system.

Membership, Visits and Platform-Enabled Sessions

We completed approximately 10.6 million, 4.1 million and 2.6 million telehealth visits in 2020, 2019 and 2018, respectively. U.S. Paid Membership increased by approximately 15.1 million Members to 51.8 million from December 31, 2019 to December 31, 2020. U.S. Paid Membership increased by approximately 13.9 million Members to 36.7 million from December 31, 2018 to December 31, 2019. We also completed approximately 2.1 million platform-enabled sessions associated with InTouch from July 1, 2020, the date we acquired InTouch, to December 31, 2020.

Acquisition History

We have scaled and intend to continue to scale our platform through the pursuit of selective acquisitions. We have completed multiple acquisitions since our inception, which we believe have expanded our distribution capabilities and broadened our service offering.

On October 30, 2020, we completed the merger with Livongo. Upon completion of the merger, each share of Livongo’s common stock converted into the right to receive 0.5920 shares of Teladoc Health’s common stock and $4.24 in cash, without interest. In addition, in connection with the closing of the merger, Livongo paid a special cash dividend equal to $7.09 per share to shareholders of Livongo as of a record date of October 29, 2020. The total consideration was $13,938.0 million consisting of $401.0 million of net cash, $555.4 million related to the conversion feature of the Livongo Notes guaranteed by the Company and 60.4 million shares of Teladoc Health’s common stock valued at approximately $12,981.6 million on October 30, 2020. Livongo is a leading provider to empower people with chronic conditions to live better and healthier lives.

On July 1, 2020, we completed the acquisition of InTouch for aggregate consideration of $1,069.8 million, which was comprised of 4.6 million shares of our common stock valued at $903.3 million on July 1, 2020, and $166.5 million of net cash. InTouch is a leading provider of enterprise telehealth solutions for hospitals and health systems.

On April 30, 2019, we completed the acquisition of the Paris-based telemedicine provider MedecinDirect for aggregate net cash consideration of $11.2 million and with the potential for additional earnout consideration. On June 19, 2019, we made a $5.0 million minority investment in Vida Health.

On May 31, 2018, we completed our acquisition of Advance Medical, a leading virtual healthcare provider outside the United States, for aggregate consideration of $351.7 million, which was comprised of 1,344,387 shares of our common stock valued at $68.6 million on May 31, 2018, and $283.1 million of net cash.

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On July 14, 2017, we completed the acquisition of Best Doctors, for aggregate consideration of $445.5 million, which was comprised of $379.3 million of net cash and 1,855,078 shares of our common stock valued at $66.2 million. Best Doctors is the world’s leading expert medical consultation company focused on improving health outcomes for the most complex, critical, and costly medical issues.

Key Factors Affecting Our Performance

We believe that our future performance will depend on many factors, including the following:

Number of Members. Our revenue growth rate and long-term profitability are affected by our ability to increase our number of Members because we derive a substantial portion of our revenue from subscription access fees via Client contracts that provide Members access to our professional provider network in exchange for a contractual based monthly fee or subscription access fees derived from our D2C Members. Therefore, we believe that our ability to add new Members is a key indicator of our increasing market adoption, the growth of our business and future revenue potential, and that increasing our Membership is an integral objective that will provide us with the ability to continually innovate our services and support initiatives that will enhance Members’ experiences.

In 2020, Membership increased by approximately 15.1 million Members or 41%, to 51.8 million at December 31, 2020. From December 31, 2018 through December 31, 2019, Membership increased by approximately 13.9 million Members, or 61%, to 36.7 million at December 31, 2019.

Number of Visits. We also recognize revenue in connection with the completion of a general medical visit, expert medical service and other specialty visits for the majority of our contracts. Accordingly, our visit revenue, or visit fees, generally increase as the number of visits increase. Visit fee revenue is driven primarily by the number of Clients, the number of Members in a Client’s population, Member utilization of our provider network services and the contractually negotiated prices of our services. We believe that increasing our current Member utilization rate and increasing penetration further into existing and new health plan Clients is a key objective in order for our Clients to realize tangible healthcare savings with our service. Visits increased by 156%, or 6.5 million, to approximately 10.6 million for the year ended December 31, 2020 compared to the same period in 2019. Visits increased by 57%, or 1.5 million, to approximately 4.1 million for the year ended December 31, 2019 compared to the same period in 2018.

Number Platform-Enabled of Sessions. A platform-enabled session is a unique instance in which our licensed software platform has facilitated a virtual voice or video encounter between a care provider and our Client’s patient, or between care providers. We believe platform-enabled sessions are an indicator of the value our Clients derive from the platform they license from us in order to facilitate virtual care. Over time, we expect platform-enabled sessions to outpace overall revenue growth as telehealth becomes a bigger part of our Clients’ care delivery strategy. 2.1 million platform-enabled sessions associated with InTouch were completed from July 1, 2020, the date we acquired InTouch, to December 31, 2020.

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

As a result of national seasonal cold and flu trends, we typically experience our highest level of visit fees during the first and fourth quarters of each year. Conversely, the second quarter of the year has historically been the period of lowest utilization of our provider network services relative to the other quarters of the year. However, during the COVID-19 pandemic in 2020, we did not experience the typical seasonality associated with national cold and flu outbreaks. See “Risk Factors—Risks Related to Our Business—Our quarterly results may fluctuate significantly, which could adversely impact the value of our common stock.” included elsewhere in this Annual Report on Form 10-K.

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Critical Accounting Policies

Revenue

We generate virtual healthcare service revenue from contracts with Clients who purchase access to our professional provider network or medical experts for their employees, dependents and other beneficiaries. Our Client contracts include a per-Member-per-month access fee and certain contracts also include additional fees for general medical and other specialty visits on a per-telehealth visit basis and expert medical service on a per case basis. We also have certain contracts that generate revenue based solely on a per telehealth visit basis for general medical and other specialty visits. For our D2C behavioral health product, Members purchase access to our professional provider network for an access fee. Accordingly, we record access revenue from access fees and visit fee revenue for general medical, expert medical service and other specialty visits. Other revenue is generated from contracts with Clients for the sale and rental of access to our hosted virtual healthcare platform.

Revenues are recognized when we satisfy our performance obligation to stand ready to provide telehealth services which occurs when our Clients and Members have access to and obtain control of the telehealth service. Revenue is recognized in an amount that reflects the consideration that is expected in exchange for the service and this may include a variable transaction price as the number of Members may vary from the initial billing. We estimate this amount based on historical experience, which is recorded as a component of revenue. For other revenue which primarily includes virtual healthcare devices, our performance obligation is satisfied when the equipment is provided to the Client and revenue is recognized at a point in time upon shipment.

Access revenue accounted for 79% of our total revenue during the year ended December 31, 2020, and 84% of our total revenue for both of the years ended December 31, 2019 and 2018. Access revenue is driven primarily by the number of Clients, the number of Members in a Client’s population, the number of services contracted for by a Client and the contractually negotiated prices of our services. Visit fee revenue for general medical, expert medical service and other specialty visits is driven primarily by the number of Clients, the number of Members in a Client’s population, Member utilization of our professional provider network services and the contractually negotiated prices of our services.

Certain of our contracts include Client performance guarantees and pricing adjustments that are based upon minimum Member utilization and guarantees by us for specific service level performance, Member satisfaction scores, cost savings guarantees and health outcome guarantees. If Client performance guarantees are not met, we record, as a reduction to revenue, an estimate of the amount that will be due at the end of the respective Client’s contractual period.

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

Deferred Revenue

Deferred revenue represents billed, but unrecognized revenue, and is comprised of fees received in advance of the delivery or completion of the services and amounts received in instances when revenue recognition criteria have not been met. Deferred revenue associated with upfront payments for a device is amortized ratably over expected Member enrollment period. Deferred revenue that will be recognized during the succeeding twelve-month period is recorded as current deferred revenue and the remaining portion is recorded as noncurrent deferred revenue.

Deferred Costs and Other

Deferred costs and other consist of deferred device costs and deferred contract costs.

Deferred device costs consist of cost of inventory incurred in connection with delivery of services that are deferred and amortized over the shorter of the expected Member enrollment period or the expected device life and recorded as cost of revenue.

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Deferred contract costs represent the incremental costs of obtaining a contract with a Client if we expect to recover such costs. The primary example of our costs to obtain a contract include incremental sales commissions to obtain contracts paid to our sales organization. These incremental costs to obtain Client contracts are deferred and then amortized on a straight-line basis over the period of benefit which has been determined to be four years. Amortization expense is included in sales and marketing expenses in the consolidated statement of operations.

Deferred costs and other that are to be amortized within twelve months are recorded to deferred costs and other, current and the remainder is recorded to deferred costs and other, noncurrent on our consolidated balance sheets.

Business Combinations

We account for our business combinations using the acquisition method of accounting. The purchase price is attributed to the fair value of the assets acquired and liabilities assumed. Transaction costs and accelerated grants of stock-based awards directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date. The excess of the purchase price of acquisition over the fair value of the identifiable net assets of the acquiree is recorded as goodwill. The results of businesses acquired in a business combination are included in our consolidated financial statements from the date of acquisition.

When we issue stock-based or cash awards to an acquired company’s shareholders, we evaluate whether the awards are consideration or compensation for post-acquisition services. The evaluation includes, among other things, whether the vesting of the awards is contingent on the continued employment of the acquired company’s stockholders beyond the acquisition date. If continued employment is required for vesting, the awards are treated as compensation for post-acquisition services and recognized as expense over the requisite service period.

Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates and selection of comparable companies. The estimates and assumptions used to determine the fair values and useful lives of identified intangible assets could change due to numerous factors, including market conditions, technological developments, economic conditions and competition. In connection with determination of fair values, we may engage a third-party valuation specialist to assist with the valuation of intangible and certain tangible assets acquired and certain assumed obligations. Acquisition-related transaction costs incurred by us are not included as a component of consideration transferred but are accounted for as an operating expense in the period in which the costs are incurred.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized but is tested for impairment annually on October 1 or more frequently if events or changes in circumstances indicate that the asset may be impaired. We operate as one reporting unit and the fair value of the reporting unit is estimated using quoted market prices in active markets of our stock. An impairment charge is recognized for the excess of the carrying value of goodwill over its implied fair value.

Our annual goodwill impairment test resulted in no impairment charges in any of the periods presented in the consolidated financial statements.

Other intangible assets include Client relationships, non-compete agreements, acquired technology, patents and trademarks resulting from business acquisitions, and capitalized software development costs. We amortize such definite-lived intangible assets over their estimated useful lives. We also review the useful lives on a quarterly basis to determine if the period of economic benefit has changed. Client relationships are amortized over a period of 2 to 20 years in relation to expected future cash flows, while non-compete agreements are amortized over a period of 1.5 to 5 years using the straight-line method. Trademarks are amortized over 3 to 15 years using the straight-line method. Technology is amortized over 5 to 7 years using the straight-line method. Patents are amortized over 3 years using the straight-line method. Capitalized software development costs are amortized over 3 to 5 years using the straight-line method.

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Definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. If the carrying value of an intangible asset exceeds its fair value, an impairment charge would be recognized in an amount equal to the amount by which the carrying value of the intangible asset exceeds its fair value. There were no events or changes in circumstances that would indicate that the carrying value of the definite-lived intangible assets may not be recoverable during the years ended December 31, 2020, 2019 or 2018.

Convertible Senior Notes

Convertible Senior Notes (the Notes) and the Livongo Notes that we agreed to guarantee (the Livongo Notes) are accounted for in accordance with FASB ASC Subtopic 470-20, Debt with Conversion and Other Options. Pursuant to ASC Subtopic 470-20, issuers of certain convertible debt instruments, such as the Notes and the Livongo Notes, that have a net settlement feature and may be settled wholly or partially in cash upon conversion are required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The carrying amount of the liability component of the instrument is computed by estimating the fair value of a similar liability without the conversion option using an income-based approach. For the income-based approach, we use a convertible bond lattice model that includes assumptions such as volatility and the risk-free rate. The amount of the equity component is then calculated by deducting the fair value of the liability component from the principal amount of the Notes or the fair value of the total Livongo Notes assumed on consummation of the merger, as applicable. The difference between the principal amount and the liability component represents a debt discount that is amortized to interest expense over the contractual term of the Notes or the Livongo Notes using an effective interest rate method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the issuance costs related to the Notes, the allocation of issuance costs, if applicable, incurred between the liability and equity components were based on their relative values.

Stock-Based Compensation

Stock-based compensation for stock options and restricted stock units granted is measured based on the grant date fair value of the awards and recognized on a straight-line basis over the period during which the employee is required to perform services in exchange for the award (generally the vesting period of the award). We estimate the fair value of employee stock options using the Black-Scholes option-pricing model, except as noted. Stock-based compensation for performance stock units (“PSU”) granted is measured based on the grant- date fair value of the awards and recognized on an accelerated tranche by tranche basis over the period during which the employee is required to perform services in exchange for the award (generally the vesting period of the award). The ultimate number of PSUs that are issued to an employee is the result of the actual performance of the Company at the end of the performance period compared to the performance conditions and can range from 50% to 225% of the initial grant. For stock-based compensation assumed in the Livongo merger, the Monte Carlo valuation model was the most suitable for valuation of options for the replaced and replacement awards from the merger.

Our Employee Stock Purchase Plan (“ESPP”) permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. Under the ESPP, we may specify offerings with durations of not more than 27 months, and may specify shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of its common stock will be purchased for employees participating in the offering. An offering may be terminated under certain circumstances. The price at which the stock is purchased is equal to the lower of 85% of the fair market value of the common stock at the beginning of an offering period or on the date of purchase.

Components of Results of Operations

Cost of Revenue(exclusive of depreciation and amortization, which is shown separately)

Cost of revenue (exclusive of depreciation and amortization, which is shown separately) primarily consists of fees paid to the physicians and other health professionals in our provider network; product cost; costs incurred in connection with our provider network operations and data center activities, which include employee-related expenses

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(including salaries and benefits), costs related to Client support; provider network, medical records, magnetic resonance imaging, medical lab tests, translation, postage, medical malpractice insurance, and deferred device costs. Cost of revenue (exclusive of depreciation and amortization, which is shown separately) is driven primarily by the number of general medical visits, expert medical services and other specialty visits completed in each period and are closely correlated or directly related to delivery of our solutions and monthly subscription fees. Many of the elements of the cost of revenue (exclusive of depreciation and amortization, which is shown separately) are relatively variable, and can be reduced in the near-term to offset any decline in our revenue. Our business and operational models are designed to be highly scalable and leverage variable costs to support revenue-generating activities. Cost of revenue (exclusive of depreciation and amortization, which is shown separately) does not include an allocation of depreciation and amortization.

Advertising and Marketing Expenses

Advertising and marketing expenses consist primarily of costs of digital advertisements, personnel and related expenses for our marketing staff and communications materials that are produced for Member acquisition and to generate greater awareness and utilization among our Clients and Members. Marketing costs also include third-party independent research, trade shows and brand messages, public relations costs and stock-based compensation for our advertising and marketing employees. Our advertising and marketing expenses exclude certain allocations of occupancy expense as well as depreciation and amortization.

We expect our advertising and marketing expenses to increase for the foreseeable future as we continue to increase the size of our digital and media advertising and marketing operations including Member acquisition and engagement activities and expand into new products and markets. Our advertising and marketing expenses will fluctuate as a percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and extent of our advertising campaigns and marketing expenses. We will continue to invest in advertising and marketing by promoting our brands through a variety of marketing and public relations activities.

Sales Expenses

Sales expenses consist primarily of employee-related expenses, including salaries, benefits, commissions, employment taxes, travel and stock-based compensation costs for our employees engaged in sales, account management and sales support in addition to commissions paid to external brokers. Our sales expenses exclude certain allocations of occupancy expense as well as depreciation and amortization. We expect our sales expenses to continue to increase in the short-to-medium-term as we strategically invest to expand our business and to capture an increasing amount of our market opportunity.

Technology and Development Expenses

Technology and development expenses include personnel and related expenses for software engineering, information technology infrastructure, security and compliance, product development and support for our efforts to add new features and ensure the reliability and scalability of our existing solutions. Technology and development expenses also include outsourced software engineering services, the costs of operating our on-demand technology infrastructure, licensed applications and stock-based compensation for our technology and development employees. Our technology and development expenses exclude certain allocations of occupancy expense as well as depreciation and amortization.

We expect our technology and development expenses to increase for the foreseeable future as we continue to invest in the development of our technology platform. Our technology and development expenses may fluctuate as a percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and extent of our technology and development expenses. Historically, the majority of our technology and development costs have been expensed, except those costs that have been capitalized as software development costs.

Legal and Regulatory Expenses

Legal and regulatory expenses include professional fees incurred and settlements. Our legal and regulatory expenses exclude certain allocations of personnel and related expenses, occupancy expense as well as depreciation and amortization.

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Acquisition and Integration Related Costs

Acquisition and integration related costs include investment banking, financing, legal, accounting, consultancy, integration, fair value changes related to contingent consideration and certain other transaction costs related to mergers and acquisitions.

General and Administrative Expenses

General and administrative expenses include personnel and related expenses of, and professional fees incurred by our executive, finance, legal, business development, operations and human resources departments. They also include stock-based compensation costs related to our board of directors and our employees and most of the facilities costs including utilities and facilities maintenance. Our general and administrative expenses exclude any allocation of depreciation and amortization.

We expect our general and administrative expenses to increase for the foreseeable future as we continue to grow our business. However, we expect our general and administrative expenses to decrease as a percentage of our total revenue over the next several years. Our general and administrative expenses may fluctuate as a percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and extent of our general and administrative expenses.

Depreciation and Amortization

Depreciation and amortization consist primarily of depreciation of fixed assets, amortization of capitalized software development costs and amortization of acquisition-related intangible assets.

Amortization of Warrants and Loss on Extinguishment of Debt

Amortization of warrants and loss on extinguishment of debt consists of costs associated with debt refinances including the write off of origination and termination financing fees and recognition of the fair value of warrants included with the loan facilities.

Foreign Currency

The functional currency for each of our foreign subsidiaries is the local currency. All assets and liabilities denominated in a foreign currency are translated 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 translation gains or losses are included in stockholders’ equity as a component of accumulated other comprehensive income (loss). We have not utilized hedging strategies with respect to such foreign exchange exposure.

Interest Expense, Net

Interest expense, net consists of interest costs associated with our bank, other debt and amortization of debt issuance costs and costs associated with the Notes and Livongo Notes, net of interest earned on cash and cash equivalents and short-term marketable securities as well as foreign exchange gain or loss related to transactions in currencies other than the local functional currency.

Income Tax Provision

We follow the provisions of the accounting guidance on accounting for income taxes which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided to reduce the deferred tax asset to a level which, more likely than not, will be realized. We have recorded deferred tax liabilities arising principally from

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acquired intangible assets in the U.S. and in foreign jurisdictions. We have provided a valuation allowance for certain of our U.S. and foreign deferred tax assets at December 31, 2020, 2019 and 2018, as it is more likely than not that these assets will not be realized in the future. In 2020, we released a portion of the valuation allowance against the deferred tax assets attributable to our U.S. NOLs as the acquired intangibles from the InTouch Health and Livongo acquisitions serve as a source of income for which we, more likely than not, will be able to realize the benefits of the deferred tax assets against.

Consolidated Results of Operations

The following table sets forth our consolidated statement of operations data for the years ended December 31, 2020, 2019 and 2018 and the dollar and percentage change between the respective periods (dollars in thousands):

Year Ended December 31,

$ Variance % $ Variance % $

Expenses:

Operating expenses:

NM – not meaningful

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EBITDA and Adjusted EBITDA

The following table reconciles net loss to EBITDA and Adjusted EBITDA for the years ended December 31, 2020, 2019 and 2018 (in thousands):

Year Ended

December 31,

Add:

Loss on extinguishment of debt 9,077 0 0

Gain on sale 0 0 (5,500)

Acquisition and integration related costs 88,236 6,620 10,391

(1) Non-U.S. 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, depreciation and amortization and loss on extinguishment of debt. We believe that making such adjustment provides investors meaningful information to understand our results of operations and the ability to analyze financial and business trends on a period-to-period basis. For presentation purposes, foreign exchange gain or loss is included in interest expense, net in our consolidated statement of operations.

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

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

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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

We completed our acquisitions of Livongo on October 30, 2020, InTouch on July 1, 2020, MedecinDirect on April 30, 2019, Advance Medical on May 31, 2018 and Best Doctors on July 14, 2017. The results of operations of the aforementioned acquisitions have been included in our audited consolidated financial statements included in this Form 10-K from their respective acquisition dates.

Revenue. Total revenue was $1,094.0 million including $128.3 million from InTouch and Livongo for the year ended December 31, 2020, compared to $553.3 million during the year ended December 31, 2019, an increase of $540.7 million, or 98%. Excluding the impact of the InTouch and Livongo acquisitions, revenue increased 75%, reflecting the acceleration of the adoption of virtual care stemming from the COVID-19 pandemic and our broad momentum to transform the healthcare experience. The increase in revenue was significantly driven by an increase in new Clients and the number of new Members generating additional subscription access fees and visit fees. The number of paid Members increased by 41% from December 31, 2019 to December 31, 2020. Revenue from the U.S. subscription access fees was $737.4 million for the year ended December 31, 2020 compared to $356.7 million for the year ended December 31, 2019. We generated $124.4 million of international subscription access fees for the year ended December 31, 2020 and $106.6 million for the year ended December 31, 2019. We completed approximately 10.6 million visits, representing $206.9 million of visit fees for the year ended December 31, 2020, compared to 4.1 million visits, representing $90.0 million of visit fees during the year ended December 31, 2019, an increase of $116.9 million, or 130%.

Total revenue was $553.3 million including $33.2 million from Advance Medical and MedecinDirect for the year ended December 31, 2019, compared to $417.9 million during the year ended December 31, 2018, an increase of $135.4 million, or 32%. Excluding the impact of Advance Medical and MedecinDirect acquisitions, revenues increased 24%. The increase in revenue was driven by an increase in new Clients and the number of new Members generating additional subscription access fees and visit fees, as well as revenue from the acquisitions of Advance Medical and MedecinDirect. The number of paid Members increased by 57% from December 31, 2018 to December 31, 2019. Revenue from the U.S. subscription access fees was $356.7 million for the year ended December 31, 2019 compared to $277.1 million for the year ended December 31, 2018. We generated $106.6 million of international subscription access fees for the year ended December 31, 2019 and $73.7 million for the year ended December 31, 2018. We completed

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approximately 4,138,000 visits, representing $90.0 million of visit fees for the year ended December 31, 2019, compared to 2.6 million visits, representing $90.0 million of visit fees during the year ended December 31, 2018, an increase of $22.9 million, or 34%.

Cost of Revenue (exclusive of depreciation and amortization, which is shown separately below). Cost of revenue (exclusive of depreciation and amortization, which is shown separately below) was $390.8 million for the year ended December 31, 2020 compared to $184.5 million for the year ended December 31, 2019, an increase of $206.3 million, or 112%. The increase was primarily due to higher Membership and general medical visits resulting in increased provider fees and increased physician network operation center costs, and hiring of additional personnel to manage our provider network operations centers, and to a lesser extent, the impact from the InTouch and Livongo acquisitions.

Cost of revenue (exclusive of depreciation and amortization, which is shown separately below) was $184.5 million for the year ended December 31, 2019 compared to $128.7 million for the year ended December 31, 2018, an increase of $55.7 million, or 43%. The increase was primarily due to higher general medical visits resulting in increased provider fees and increased physician network operation center costs, and hiring of additional personnel to manage our provider network operations centers, as well as the impact from Advance Medical and MedecinDirect services.

Advertising and Marketing Expenses. Advertising and marketing expenses were $226.2 million for the year ended December 31, 2020 compared to $109.7 million for the year ended December 31, 2019, an increase of $116.5 million, or 106%. Excluding the impact from InTouch and Livongo of $33.1 million, this increase primarily consisted of $78.3 million from an increase in Member engagement initiatives, digital and media advertising, sponsorship of professional organizations and trade shows and to a lesser extent, the hiring of additional personnel totaling $5.0 million.

Advertising and marketing expenses were $109.7 million for the year ended December 31, 2019 compared to $85.1 million for the year ended December 31, 2018, an increase of $24.6 million, or 29%. The increase primarily consisted of $18.1 million from an increase in Member engagement initiatives, digital and media advertising, sponsorship of professional organizations and trade shows, as well as the hiring of additional personnel totaling $5.9 million.

Sales Expenses. Sales expenses were $154.1 million for the year ended December 31, 2020 compared to $64.9 million for the year ended December 31, 2019, an increase of $89.2 million, or 137%. Excluding the impact from the recent acquisitions of $78.2 million, this increase primarily consisted of increased staffing and employee-related expenses including sales commissions of $14.9 million, partially offset by lower travel and entertainment expenses and other expenses of $4.0 million.

Sales expenses were $64.9 million for the year ended December 31, 2019 compared to $59.2 million for the year ended December 31, 2018, an increase of $5.8 million, or 10%. Including the impact from the recent acquisitions, this increase primarily consisted of increased staffing and employee-related expenses including sales commissions of $4.7 million and other expenses of $1.3 million.

Technology and Development Expenses. Technology and development expenses were $164.9 million for the year ended December 31, 2020 compared to $64.6 million for the year ended December 31, 2019, an increase of $100.3 million, or 155%. Excluding the impact from InTouch and Livongo of $74.1 million, this increase resulted primarily from hiring additional personnel totaling $14.9 million, professional fees of $8.5 million, and ongoing projects to improve and optimize our technology platform and other expenses of $2.8 million.

Technology and development expenses were $64.6 million for the year ended December 31, 2019 compared to $54.4 million for the year ended December 31, 2018, an increase of $10.3 million, or 19%. Including the impact from acquisitions, this increase resulted primarily from hiring additional personnel totaling $7.1 million, professional fees of $2.4 million, and ongoing projects to improve and optimize our technology platform and other expenses of $0.8 million.

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Legal and Regulatory Expenses. Legal and regulatory expenses were $8.9 million for the year ended December 31, 2020 compared to $6.8 million for the year ended December 31, 2019, an increase of $2.1 million, or 31%. This increase resulted primarily from litigation activities largely associated with a class action complaint.

Legal and regulatory expenses were $6.8 million for the year ended December 31, 2019 compared to $4.0 million for the year ended December 31, 2018, an increase of $2.8 million, or 70%. This increase resulted primarily from litigation activities largely associated with a class action complaint.

Acquisition and Integration Related Costs. Acquisition and integration related costs were $88.2 million for the year ended December 31, 2020 compared to $6.6 million for the year ended December 31, 2019, an increase of $81.6 million. These costs were incurred primarily with the InTouch acquisition and the merger with Livongo as well as in connection with integration activities of prior acquisitions. The 2020 acquisition and integration related costs represent investment banking, financing, legal, accounting, consultancy, integration, fair value changes related to contingent consideration and certain other non-recurring transaction costs related to mergers and acquisitions.

Acquisition and integration related costs were $6.6 million for the year ended December 31, 2019 compared to $10.4 million for the year ended December 31, 2018, a decrease of $3.8 million. The 2019 acquisition and integration related costs represent investment banking, financing, legal, accounting, consultancy, integration, fair value changes related to contingent consideration and certain other non-recurring transaction costs related to mergers and acquisitions. The 2018 integration related costs represent legal, personnel, re-branding and professional related fees for the May 2018 acquisition of Advance Medical and the July 2017 acquisition of Best Doctors.

Gain on Sale. Gain on sale of $5.5 million for the year ended December 31, 2018 consists of the June 2018 sale of certain Client contracts.

General and Administrative Expenses. General and administrative expenses were $497.8 million for the year ended December 31, 2020 compared to $157.7 million for the year ended December 31, 2019, an increase of $340.1 million, or 216%. Excluding the impact from the InTouch and Livongo acquisitions of $283.4 million, this increase was driven in part by an increase in employee-related expenses of approximately $23.1 million, primarily due to an increase in stock-compensation expense and growth in overall full time employee headcount reflecting the acceleration of the adoption of virtual care stemming from the COVID-19 pandemic and our broad momentum to transform the healthcare experience. Costs incurred in our provider network operations centers in connection with enhancing our Member services increased to $14.7 million for the year ended December 31, 2020 from $5.8 million for the year ended December 31, 2019, an increase of $8.9 million. Professional fees, increased by $3.1 million for the year ended December 31, 2020 as compared to December 31, 2019. Other expenses, which include office-related charges, bank charges, therapist recruiting, liability insurance and bad debt expenses, increased in total to $51.4 million for the year ended December 31, 2020 from $29.8 million for the year ended December 31, 2019, an increase of $21.6 million, reflecting the impact from business growth, including bank charges, therapist recruiting, credentialing, liability insurance, bad debt and others.

General and administrative expenses were $157.7 million for the year ended December 31, 2019 compared to $116.9 million for the year ended December 31, 2018, an increase of $40.8 million, or 35%. Including the impact from acquisitions, this increase was driven by an increase in employee-related expenses of approximately $29.7 million, primarily due to an increase in stock-compensation expense and growth in overall full time employee headcount. Costs incurred in our provider network operations centers in connection with enhancing our Member services increased to $5.8 million for the year ended December 31, 2019 from $2.6 million for the year ended December 31, 2018, an increase of $3.2 million. Professional fees, increased by $2.5 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018. Other expenses, which include office-related charges and bank charges, severance costs, lease costs and bad debt expenses, increased in total to $29.8 million for the year ended December 31, 2019 from $24.5 million for the year ended December 31, 2018, an increase of $5.3 million and primarily reflecting the impact from the acquisitions.

Depreciation and Amortization. Depreciation and amortization were $69.5 million for the year ended December 31, 2020 compared to $39.0 million for the year ended December 31, 2019, an increase of $30.5 million, or

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78%. This increase was due to additional amortization expense primarily related to acquisition-related intangible assets that increased from $319.8 million at December 31, 2019 to $2,183.4 million at December 31, 2020 and an increase in depreciation expense on an increased base of depreciable fixed assets that increased from $26.1 million at December 31, 2019 to $50.5 million at December 31, 2020.

Depreciation and amortization were $39.0 million for the year ended December 31, 2019 compared to $35.6 million for the year ended December 31, 2018, an increase of $3.4 million, or 9%. This increase was due to additional amortization expense primarily related to acquisition-related intangible assets that increased from $305.7 million at December 31, 2018 to $319.8 million at December 31, 2019 and an increase in depreciation expense on an increased base of depreciable fixed assets that increased from $22.4 million at December 31, 2018 to $26.1 million at December 31, 2019.

Interest Expense, Net. Interest expense, net consists of interest costs and amortization of debt discount associated with our bank debt, the Notes, and the Livongo Notes, interest income from cash and cash equivalents and short-term investments in marketable securities as well as foreign exchange gain or loss. Interest expense, net was $60.5 million and $29.0 million for the years ended December 31, 2020 and 2019, respectively. The increase in interest expense primarily is associated with the 2027 Notes issued in May 2020 and Livongo Notes that the Company agreed to guarantee in October 2020.

Interest expense, net was $29.0 million and $26.1 million for the years ended December 31, 2019 and 2018, respectively. The increase in interest expense primarily is associated with the 2025 Notes issued in May 2018.

Income tax benefit. Income tax benefit was $(90.9) million for the year ended December 31, 2020 compared to $(10.6) million benefit for the year ended December 31, 2019, the increased tax benefit largely reflects the recognition of current period losses due the partial release of the U.S valuation allowance due to acquired intangibles from the purchases of InTouch Health and Livongo as well as increased excess stock-based compensation deductions.

The income tax benefit of $(10.6) million for the year ended December 31, 2019 largely reflects an $(8.5) million income tax benefit associated with the intercompany transfer of a U.S. subsidiary from a foreign owned subsidiary to the U.S. parent while the Company was in a significant valuation allowance position.

Liquidity and Capital Resources

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

Year Ended

December 31,

Consolidated Statements of Cash Flows Data

Our principal sources of liquidity were cash and cash equivalents, comprised of money market funds and marketable securities, totaling $733.3 million, including restricted cash of $62.6 million as of December 31, 2020. Additionally, we had short-term marketable securities of $53.2 million as of December 31, 2020. During 2020 we experienced positive Adjusted EBITDA and we anticipate increasing positive Adjusted EBITDA results for 2021.

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

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

Historically, we have financed our operations primarily through sales of equity securities, debt issuance and bank borrowings.

On October 30, 2020, we completed the merger with Livongo. Upon completion of the merger, each share of Livongo’s common stock converted into the right to receive 0.5920 shares of our common stock and $4.24 in cash, without interest. In addition, in connection with the closing of the merger, Livongo paid a special cash dividend equal to $7.09 per share of Livongo’s common stock to shareholders of Livongo as of a record date of October 29, 2020. The total consideration was $13,938.0 million consisting of $401.0 million of net cash, $555.4 million related to the conversion feature of the Livongo Notes guaranteed by the Company and 60.4 million shares of Teladoc Health’s common stock valued at approximately $12,981.6 million on October 30, 2020. Livongo is a leading provider to empower people with chronic conditions to live better and healthier lives.

On October 30, 2020, as part of the Livongo acquisition, we agreed to guarantee Livongo’s obligations under its $550.0 million aggregate principal amount of convertible senior notes due 2025, which had been issued by Livongo on June 4, 2020, prior to our acquisition of Livongo. The Livongo Notes bear cash interest at a rate of 0.875% per year, payable semi-annually in arrears on June 1 and December 1 of each year. The Livongo Notes will mature on June 1, 2025.

On May 19, 2020, we issued, at par value, $1 billion aggregate principal amount of 1.25% convertible senior notes due 2027 (the 2027 Notes). The 2027 Notes bear cash interest at a rate of 1.25% per year, payable semi-annually in arrears 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.

On April 30, 2019, we completed the acquisition of MedecinDirect. The purchase price was $11.2 million cash with additional potential earnout consideration.

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

On 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’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 proceeds to the Company from the offering were $279.1 million after deducting the initial purchasers’ discounts, commissions and offering expenses of approximately $8.4 million.

The Company’s Senior Secured Revolving Credit Facility was terminated pursuant to its terms effective July 14, 2020. There was no amount outstanding as of December 31, 2019 other than $2.2 million of letters of credit issued for facility security deposits at December 31, 2019. In addition, the acquired fair value of the assumed indebtedness of $10.0 million in connection with Livongo merger was paid in full and there was no amount outstanding as of December 31, 2020.

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See Note 12, “Convertible Senior Notes” of the Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K for additional information on the Notes and the Livongo Notes.

We were in compliance with all debt covenants at December 31, 2020 and 2019.

Cash (Used in) Provided by Operating Activities

Cash flows (used in) provided by operating activities consist of net loss adjusted for certain non-cash items and changes in assets and liabilities. Cash (used in) provided by operating activities was $(53.5) million and $29.9 million for the years ended December 31, 2020 and 2019, respectively. The year-over-year decrease was substantially driven by higher payment of acquisition and integration related costs, as well as costs for strategic investments in personnel, technology and Member engagement. This was partially offset by higher revenues and improved operating leverage.

Cash flows provided by (used in) operating activities consist of net loss adjusted for certain non-cash items and changes in assets and liabilities. Cash provided by (used in) operating activities was $29.9 million and $(4.9) million for the years ended December 31, 2019 and 2018, respectively. The year-over-year increase was primarily driven by higher revenues and improved operating leverage, partially offset by higher costs for strategic investments in personnel, technology and Member engagement.

Our primarily uses of cash from operating activities are for the payment of cash compensation expenses, providers fee, inventory, insurance, office expenses, technology costs, market data costs, interest expense and acquisition and integration costs. Historically, the payment of cash for compensation and benefits is at its highest level in the first quarter when we pay discretionary employee compensation related to the previous fiscal year.

Cash (Used in) Provided by Investing Activities

Cash used in investing activities was $591.0 million for the year ended December 31, 2020. Cash used in investing activities consisted of acquisition of businesses of $567.4 million, net of cash acquired, investment in capital expenditures totaling $4.0 million, investments in capitalized software development costs of $22.0 million, and partially offset by proceeds from short-term marketable securities of $2.5 million.

Cash provided by investing activities was $25.0 million for the year ended December 31, 2019. Cash provided by investing activities consisted of proceeds from short-term marketable securities of $52.1 million partially offset by investment in capital expenditure totaling $3.5 million, investments in capitalized software development costs of $7.4 million, investment in securities of $5.0 million and acquisition of businesses of $11.2 million.

Cash Provided by Financing Activities

Cash provided by financing activities for the year ended December 31, 2020 was $859.1 million. Cash provided by financing activities consisted of $975.9 million of net cash proceeds from the issuance of the 2027 Notes, $91.7 million of proceeds from sale of the capped call associated with the Livongo Notes, $54.3 million of proceeds from the exercise of employee stock options, $4.7 million of proceeds from participants in the employee stock purchase plan, $6.0 million of proceeds from advances from financing companies offset by $228.2 million of cash used in the repurchase of 2022 Notes, $8.6 million from a net change in payments from customers against advances from financing companies, payment of $10.0 million assumed indebtedness in connection with the Livongo merger and $26.7 million of timing associated with net cash paid for tax withholding for stock-based compensation.

Cash provided by financing activities for the year ended December 31, 2019 was $35.1 million. Cash provided by financing activities consisted of $33.3 million of proceeds from the exercise of employee stock options and $3.4 million of proceeds from participants in the employee stock purchase plan, partially offset by $1.6 million for withholding taxes for stock-based awards.

On June 4, 2020, the Livongo Notes referred to in Note 12 to the consolidated financial statements were issued on an unsecured basis by Livongo Health, Inc. In connection with the acquisition of Livongo by Teladoc Health, Inc. on October 30, 2020, Teladoc Health, Inc. became the parent guarantor of the Livongo Notes. The guarantee is full and

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unconditional and ranks equally in right of payment with all existing and future unsecured senior indebtedness. As disclosed below, summary financial information is presented for Teladoc Health, Inc., as Guarantor, excluding its consolidated subsidiaries (other than Livongo), and Livongo Health, Inc., as the Issuer, excluding its consolidated subsidiaries, collectively referred to as the Obligor Group. The summary financial information of the Obligor Group is presented on a combined basis and transactions between the combined entities have been eliminated and investments in and equity in earnings from non-guarantor subsidiaries have been excluded. Financial information for non-guarantor entities has been excluded. For the year ended December 31, 2020, revenue of the Obligor Group was $350.2 million, operating loss was $(578.2) million, net loss before taxes was $(647.4) million and net loss was $(560.8) million. As of December 31, 2020, current assets of the Obligor Group were $809.8 million, inter-company receivables were $302.5 million, total assets were $17,459.5 million, current liabilities were $199.7 million, inter-company payables were $49.5 million and total liabilities were $1,716.3 million.

Contractual Obligations and Commitments

The following summarizes our contractual obligations as of December 31, 2020 (in thousands):

Payment Due by Period

Less than 1 to 3 4 to 5 More than

Total 1 Year Years Years 5 Years

Non-cancelable purchase commitments 9,962 8,130 1,832 0 0

Our existing office and hosting co-location facilities lease agreements provide us with the option to renew and generally provide for rental payments on a graduated basis. Our future operating lease obligations would change if we entered into additional operating lease agreements as we expand our operations and if we exercised the office and hosting co-location facilities lease options. The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions and the approximate timing of the transaction. Non-cancelable purchase commitments include inventory purchases, cloud-based software contracts and other goods and services. Obligations under contracts that we can cancel without a significant penalty are not included in the table above. For abandoned facilities, the above contractual obligation schedule does not reflect any realized or potential sublease revenue.

Off-Balance Sheet Arrangements

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

Recently Issued and Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board, or FASB issued Accounting Standards Update No. 2019-12, “Simplification of Income Taxes (Topic 740) Income Taxes,” or ASU 2019-12. The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for public companies for annual periods beginning after December 15, 2020, including interim periods within those fiscal years. Weearly-adopted ASU 2019-12 in our consolidated financial statements and disclosures effective January 1, 2020, with no material impact to the financial statements.

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In January 2017, the FASB issued Accounting Standards Update No. 2017-04, “Goodwill Simplifications (Topic 350)” or ASU 2017-04. ASU 2017-04 simplifies the test for goodwill impairment. The new guidance eliminates Step 2 from the goodwill impairment test as currently prescribed in GAPP. This ASU is the result of the FASB project focused on simplifications to accounting for goodwill. The new guidance was effective for the first quarter of 2020 and was early adopted in the quarter-ended December 31, 2019.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” or ASU 2016-13. The amendments in ASU 2016-13 introduce an approach based on expected losses to estimated credit losses on certain types of financial instruments, modify the impairment model for available-for-sale debt securities and provide for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The FASB issued Accounting Standards Update No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” or ASU 2018-19, Accounting Standards Update No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” or ASU 2019-04, Accounting Standards Update No. 2019-05, “Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief,” or ASU 2019-05, Accounting Standards Update No. 2019-10, “Financial Instruments-Credit Losses (Topic 326): Effective Dates,” or ASU 2019-10 and Accounting Standards Update No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” or ASU 2019-11. The amendments in these ASUs provide clarifications to ASU 2016-13. The Company adopted ASU 2016-13 and the related clarifications effective January 1, 2020. The adoption did not have a material effect on the Company’s consolidated financial statements.

In August 2018, the FASB issued Accounting Standards Update No. 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” or ASU 2018-15 Subtopic 350-40, which aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use-software. The standard is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. We adopted ASU 2018-15 Subtopic 350-40 effective January 1, 2020. The adoption did not have a material impact on the consolidated financial statements and disclosures.

Consolidated Quarterly Results of Operations

The following table sets forth our quarterly consolidated statement of operations data for the years ended December 31, 2020 and 2019:

Expenses:

Operating expenses:

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Note: We acquired MedecinDirect on April 30, 2019, InTouch Health on July 1, 2020 and Livongo on October 30, 2020. The results of the acquisitions were integrated within our existing business on the respective acquisition dates.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk and Foreign Exchange Risk

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 do not enter into investments for trading or speculative purposes.

We operate our business primarily within the United States and currently execute approximately 88% 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.

Item 8. Financial Statements and Supplementary Data

Our Consolidated Financial Statements are listed in the Index to Consolidated Financial Statements and Supplemental Data filed as part of this Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

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 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 Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2020, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control system is designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements.

Our management, including our Chief Executive Officer and our Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. The assessment excluded the internal controls of our July 2020 acquisition of InTouch and our October 2020 acquisition of Livongo, which is in accordance with the SEC’s general guidance that a recently acquired business may be omitted from the scope of the assessment in the year of acquisition. InTouch and Livongo represented 12% of total assets (excluding goodwill) as of December 31, 2020 and 12% of revenues for the year ended December 31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework). Based on this assessment, management, including

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our Chief Executive Officer and our Chief Financial Officer, concluded that we maintained effective internal control over financial reporting at the reasonable assurance level as of December 31, 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 quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Ernst & Young LLP, independent registered public accounting firm, is appointed by the Board of Directors and ratified by our Company’s stockholders. They were engaged to render an opinion regarding the fair presentation of our consolidated financial statements as well as conducting an audit of internal control over financial reporting. Their accompanying reports are based upon audits conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States).

March 1, 2021

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Teladoc Health, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Teladoc Health, Inc.’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Teladoc Health, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of InTouch Health and Livongo Health, which are included in the 2020 consolidated financial statements of the Company and constituted 12% of total assets (excluding goodwill) as of December 31, 2020 and 12% of revenues for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of InTouch Health and Livongo Health.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”) and our report dated March 1, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of

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unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

New York, New York

March 1, 2021

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Item 9B. Other Information

None.

PART III

Information required by Items 10, 11, 12, 13 and 14 of Part III is omitted from this Annual Report and will be filed in a definitive proxy statement or by an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report.

Item 10. Directors, Executive Officers and Corporate Governance

We will provide information that is responsive to this Item 10 in our definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in either case under the captions “Directors and Executive Officers” and “Corporate Governance” and possibly elsewhere therein. That information is incorporated in this Item 10 by reference.

Our board of directors has adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and. The full text of our Code of Business Conduct and Ethics is posted on the Investors section of our website, www.teladochealth.com. We intend to disclose any amendments to our Code of Business Conduct and Ethics, or waivers of its requirements, on our website.

Item 11. Executive Compensation

We will provide information that is responsive to this Item 11 in our definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in either case under the caption “Executive Compensation,” and possibly elsewhere therein. That information is incorporated in this Item 11 by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

We will provide information that is responsive to this Item 12 in our definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in either case under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” and possibly elsewhere therein. That information is incorporated in this Item 12 by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

We will provide information that is responsive to this Item 13 in our definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in either case under the caption “Certain Relationships and Related Transactions,” and possibly elsewhere therein. That information is incorporated in this Item 13 by reference.

Item 14. Principal Accounting Fees and Services

We will provide information that is responsive to this Item 14 in our definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in either case under the caption “Services and Fees of Ernst & Young,” and possibly elsewhere therein. That information is incorporated in this Item 14 by reference.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)(1)Our Consolidated Financial Statements are listed in the Index to Consolidated Financial Statements and Supplemental Data filed as part of this Form 10-K.

(2) Schedule II—Valuation and Qualifying Accounts.

Allowance for Doubtful Accounts Receivable (in thousands):

Balance at Balance at

Beginning End

of Period Provision Write-offs Other of Period

Income Taxes Valuation Allowance (in thousands):

Balance at Balance at

Beginning End

of Period Provision Write-offs Other of Period

All other schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements and notes thereto in Item 8 above.

(3)A list of exhibits is set forth on the Exhibit Index immediately prior to the signature page of this Form 10-K, and is incorporated herein by reference.

Item 16. Form 10-K Summary

Not applicable.

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Exhibit Index

Incorporated by Reference

ExhibitNumber Exhibit Description Form File No. Exhibit FilingDate FiledHerewith

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21.1 Subsidiaries of the Registrant. *

101.INS XBRL Instance Document. *

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101.SCH XBRL Taxonomy Extension Schema Document. *

101.CAL XBRL Taxonomy Calculation Linkbase Document. *

101.DEF XBRL Definition Linkbase Document. *

TDOC US Equity

TDOC · 10-K · period ended 2020-12-31

Item7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accounting Fees and Services

Item 15. Exhibits and Financial Statement Schedules

Item 16. Form 10-K Summary

TDOC US Equity☆

TDOC · 10-K · period ended 2020-12-31

Item7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accounting Fees and Services

Item 15. Exhibits and Financial Statement Schedules

Item 16. Form 10-K Summary

TDOC US Equity