Teladoc Health, Inc. (TDOC)

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Discussion and analysis of our fiscal year 2022, as well as the year-over-year comparison of our 2023 financial performance to 2022, have been omitted from this section and may be found under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 that was filed with the SEC on February 23, 2024.

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,” the “Company,” or “we.” The Company’s principal executive office is located in Purchase, New York. Teladoc Health is the global leader in virtual care focused on forging a new healthcare experience with better convenience, outcomes, and value around the world.

We were founded on a simple, yet revolutionary idea: that everyone should have access to the best healthcare, anywhere in the world on their terms. Today, we have a vision of making virtual care the first step on any healthcare journey, and we are delivering on this mission by providing virtual care that includes primary care, mental health, chronic condition management, and more.

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

Key Factors Affecting Our Performance

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

As it relates to the Integrated Care segment:

Number of U.S. Integrated Care Members. U.S. Integrated Care members represent the number of unique individuals who have paid access and visit fee only access to our suite of integrated care services in the U.S. at the end of the applicable period. Our revenue growth rate and long-term profitability are affected by our ability to increase cross selling capability among our existing members over time because we derive a substantial portion of our revenue from access and other fees via Client contracts that provide members access to the THMG Association professional provider network in exchange for a contractual based periodic fee. Therefore, we believe that our ability to add new members and retain existing members and to increase utilization and penetration further into existing and new health plan and employer Clients is a key indicator of our increasing market adoption, the growth of our business, and our future revenue potential. We further believe 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. However, certain health plans that have historically promoted our services to our employer Clients have developed, and may in the future continue to develop, solutions that replicate our services or offer competitive services at discounted prices to our current or prospective Clients, which could result in a loss of members. For further information, see “Risk Factors—Risks Related to Our Business and Industry—We operate in a competitive industry, and if we are not able to compete effectively, our business, financial condition, and results of operations will be harmed,” and “—A significant portion of our revenue comes from a limited number of Clients, the loss of which could have a material adverse effect on our business, financial condition and results of operations” included elsewhere in this Annual Report on Form 10-K. U.S. Integrated Care members increased by 4.2 million, or 5%, to 93.8 million at December 31, 2024, compared to the same period in 2023.

Chronic Care Program Enrollment. Chronic care program enrollment represents the total number of enrollees across our suite of chronic care programs at the end of a given period. Our chronic care program enrollments are one of the key components of our virtual care platform that we believe positions us to drive greater engagement with our platforms

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and increased revenue. Chronic care program enrollment increased by 4% to 1.20 million at December 31, 2024, compared to 1.16 million at December 31, 2023.

Average Monthly Revenue Per U.S. Integrated Care Member. Average monthly revenue per U.S. Integrated Care member measures the average monthly amount of global revenue that we generate from a U.S. Integrated Care member for a particular period. It is calculated by dividing the total revenue generated from the Integrated Care segment by the average number of U.S. Integrated Care members during the applicable period. Approximately 20% of total Integrated Care revenues relates to international and hospital and health systems for which membership is not considered as a management metric. We believe that our ability to increase the revenue generated from each member over time is also a key indicator of our increasing market adoption, the growth of our business, and future revenue potential. Average monthly revenue per U.S. Integrated Care member decreased to $1.37 in the year ended December 31, 2024, from $1.41 in the same period in 2023, primarily due to the impact of new members onboarded over the course of the year. The change in average monthly revenue versus the indicated prior period is reflective of the growth and timing of onboarding new members and the mix of their fees.

As it relates to the BetterHelp segment:

BetterHelp Paying Users. BetterHelp paying users represent the average number of global monthly paying users of our BetterHelp therapy services during the applicable period. We believe that our ability to add new paying users and retain existing users is a key indicator of the market adoption of BetterHelp, the growth of this segment, and future revenue potential. Effectively reaching potential paying users through various advertising channels remains critical to our success. BetterHelp paying users decreased by 11% to 0.41 million for the year ended December 31, 2024, compared to 0.46 million for the year ended December 31, 2023.

As it relates to the Company:

Seasonality. Our business has historically been subject to seasonality. In our Integrated Care segment, a concentration of our new Client contracts have an effective date of January 1 as a result of many Clients’ introduction of new services at the start of each calendar year. Therefore, while membership increases, utilization and enrollment rates are dampened until service delivery ramps up over the course of the year. In addition, as a result of seasonal cold and flu trends, we historically have experienced our highest level of visit and other fee revenue during the first and fourth quarters of each year.

Due to the higher cost of customer acquisition during the end-of-year holiday season, our BetterHelp segment has historically reduced marketing activity during the fourth quarter. As a result of this dynamic, we have typically experienced fewer new member additions and strong operating income performance in the fourth quarter. Conversely, as marketing activity typically resumes at the start of the year, we typically experience weak operating income performance during the first quarter as new customer acquisition and revenue growth lags marketing spend.

See “Risk Factors—Risks Related to Our Business and Industry—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.

Critical Accounting Estimates and Policies

Revenue

We follow the revenue accounting requirements of Accounting Standards Codification (“ASC”) Topic 606, which establishes a principle for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The core principle of ASC Topic 606 is to recognize revenue to depict the transfer of promised goods or services to Clients as well as individual members, in an amount that reflects the consideration the entity expects to be entitled in exchange for those goods or services. This principle is achieved through applying the following five-step approach:

•Identification of the contract, or contracts, with a Client.

•Identification of the performance obligations in the contract.

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•Determination of the transaction price.

•Allocation of the transaction price to the performance obligations in the contract.

•Recognition of revenue when, or as, we satisfy a performance obligation.

Integrated Care Segment

As it relates to the Integrated Care segment, we primarily generate virtual healthcare service revenue from contracts with Clients who purchase access to the THMG Association professional provider network or medical experts for their employees, dependents and other beneficiaries. Our Client contracts include a PMPM access fee as well as certain contracts that also include additional revenue on a per-virtual healthcare visit basis for general medical, or other specialty visits or expert medical service on a per case basis. We also have certain contracts that generate revenue based solely on a per healthcare visit basis for general medical and other specialty visits.

We record access fees from Clients accessing the THMG Association professional provider network or hosted virtual healthcare platform or chronic care management platforms, visit fee revenue for general medical, expert medical service and other specialty visits as well as other revenue primarily associated with virtual healthcare device equipment included with our hosted virtual healthcare platform. Visit and other revenues are reported as “Other” revenue in our consolidated financial statements.

Revenue is also generated from contracts with Clients in hospital and health systems for the sale and rental of equipment consisting of virtual healthcare devices which allow physicians to access our hosted virtual healthcare platform. These contracts also include multiple performance obligations, and we determine the standalone selling prices based on overall pricing objectives. In some arrangements, our devices are rented to certain qualified Clients that qualify as either sales-type lease or operating lease arrangements and are subject to lease accounting guidance.

Revenue is also generated from contracts with Clients for our chronic care management solutions. Substantially all of this revenue is derived from monthly access fees that are recognized as services are rendered and earned under subscription agreements with Clients that are based on a PPPM model, using the number of active enrolled members each month for the minimum enrollment period. These solutions integrate devices, supplies, access to our web-based platform, mobile application, and clinical and data services to provide an overall health management solution. The promises to transfer these goods and services are not separately identifiable and are considered a single continuous service comprised of a series of distinct services that are substantially the same and have the same pattern of transfer (i.e., distinct days of service). These services are consumed as they are received, and we recognize revenue each month using the variable consideration allocation exception since the nature of the obligations and the variability of the payment being based on the number of active members are aligned.

Our Client agreements generally have a term of one to three years for the Integrated Care segment. The majority of Clients have a term of one year and renew their contracts following their first year of services. Revenues are recognized when we satisfy our performance obligation to stand ready to provide virtual healthcare services which occurs when our Clients and members have access to and obtain control of the virtual healthcare service or platform.

For contracts where revenue is generated on a per healthcare visit basis, revenues are recognized when the visits are completed as we have delivered on our stand ready obligation to provide access. 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.

We generally bill for virtual healthcare services on a monthly basis, in advance or in arrears depending on the service, with payment terms generally being 30 days. There are not significant differences between the timing of revenue recognition and billing. Consequently, we have 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 for certain contracts include a variable transaction price as the number of members may vary from period to period. We estimate this amount based on historical experience.

Our contracts do not generally contain refund provisions for fees earned related to services performed.

Additionally, 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

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scores, cost savings or other value achievements or guarantees, and health outcome guarantees. Performance guarantees are estimated at each reporting period based on our historical performance or other available information of the underlying criteria or the customer’s specific performance as of that reporting date. Any estimated adjustments to the contract price for achieving or not achieving the performance guarantee are recognized as an adjustment to revenue in the period. For the years ended December 31, 2024 and 2023, revenue recognized from performance obligations related to prior periods for changes in estimated transaction price or Client performance guarantees was $5.9 million and $14.7 million, respectively.

We have elected the optional exemption to not disclose the remaining performance obligations of our contracts since the majority 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.

For additional revenue, deferred revenue, deferred costs, and disclosures, refer to Note 3. “Revenue, Deferred Revenue, and Deferred Device and Contract Costs.”

BetterHelp Segment

As it relates to the BetterHelp segment, users can purchase virtual therapy services for an access fee, generally on a monthly or weekly basis. For other wellness services, users can purchase access to their consumer application for a subscription fee, generally for a period of one year. BetterHelp also provides virtual therapy services to employers as part of employee assistance programs, with revenues recorded based on completion of visit.

The BetterHelp service provides for member refunds. We estimate the expected amount of refunds to be issued based on historical experience, which are recorded as a reduction of revenue. We issued refunds of approximately $84.0 million and $93.0 million for the years ended December 31, 2024 and 2023, respectively.

Goodwill

Goodwill represents the excess of the total purchase consideration over the fair value of the identifiable assets acquired and liabilities assumed in a business combination. Goodwill is not amortized but is tested for impairment at the reporting unit level annually on October 1 or more frequently if events or changes in circumstances indicate that it is more likely than not to be impaired. These events include: (i) severe adverse industry or economic trends; (ii) significant company-specific actions, including exiting an activity in conjunction with restructuring of operations; (iii) current, historical or projected deterioration of our financial performance; or (iv) a sustained decrease in our market capitalization, as indicated by our publicly quoted share price. The Company has two reporting units, which are the same as its reportable segments: Teladoc Health Integrated Care and BetterHelp.

As of December 31, 2024, our balance of goodwill was $283.2 million, which all related to the BetterHelp segment.

For the year ended December 31, 2024, a $790.0 million non-deductible goodwill impairment charge was recognized following goodwill impairment testing performed at June 30, 2024 resulting from sustained decreases in our quoted share price and market capitalization as well as changes in the operating results of the BetterHelp reporting unit. Refer to Note 6. “Goodwill,” to our consolidated financial statements for further information.

At October 1, 2024, we performed our annual test of goodwill impairment using a quantitative analysis. We determined that the BetterHelp reporting unit’s fair value exceeded its carrying value by a significant margin, while the Integrated Care reporting unit’s fair value was less than its carrying value. Since the BetterHelp reporting unit's fair value exceeded its carrying value and the Integrated Care reporting unit carries no goodwill at October 1, 2024, no impairment was recorded.

On January 31, 2025, we signed a definitive agreement to acquire Catapult Health, LLC (“Catapult Health”) that we expect to close during the three months ending March 31, 2025. Following the closing of the acquisition, Catapult Health will be included in the Integrated Care segment. Concurrent with the closing of the acquisition of Catapult Health, some or all of the goodwill associated with the acquisition may be immediately impaired, depending on the Integrated Care reporting unit’s then-current fair value. For additional information on the acquisition of Catapult Health, see Note 19. "Subsequent Events" to the consolidated financial statements.

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Other Intangible Assets

Other intangible assets include customer relationships, non-compete agreements, acquired technology, and trademarks resulting from business acquisitions, as well as capitalized software development costs. As of December 31, 2024, the aggregate balance of these assets was $1,431.4 million. We amortize these definite-lived intangible assets over their estimated useful lives as disclosed in Note 8. “Intangible Assets, Net and Certain Cloud Computing Costs” to the consolidated financial statements. We also review the useful lives on a quarterly basis to determine if the period of economic benefit has changed. Potential changes in useful lives, whether due to strategic decisions involving our brands, competitive forces, or other factors could result in additional amortization expense taking effect prospectively in the period of the change and could have a material impact on our consolidated financial statements.

Customer relationships are amortized over a period of two to 20 years in relation to expected future cash flows. The useful lives of the customer relationships are subject to risks and uncertainties including future attrition rates. These considerations include, but are not limited to, the emergence of new competitor offerings, relative competitor pricing and scale, our ability to successfully integrate and manage the acquired customers, our level of success in delivering future innovation, and overall changes in economic and regulatory conditions. Significant changes in any one or a combination of considerations could lead us to update our weighted average attrition rate, which, in turn would impact the assigned useful life and the level of amortization expense recorded for our customer relationship intangibles. For example, a sustained increase in the customer attrition rate related to customers added as a result of the Livongo acquisition could prompt us to reduce our estimate of the remaining useful life of the customer relationships. Should this occur, a one-year reduction to the estimated life would result in an annual increase in amortization expense of approximately $6.0 million. Acquired technology is amortized over four to seven years using the straight-line method. Capitalized software development costs are amortized over three to five years using the straight-line method.

During the second half of 2023, we initiated a strategy to transition the majority of our chronic condition management Clients and members to the Teladoc Health brand on a phased basis, with a smaller subset continuing to be served under the Livongo trade name beyond 2024. In connection with the brand strategy,we accelerated the amortization of intangible assets that are associated with the Livongo trademark, increasing amortization of intangible assets expense beginning in the second half of 2023 and continuing through the year ended December 31, 2024, with corresponding reductions thereafter.

Definite-lived intangible assets are re-evaluated whenever events or changes in circumstances indicate that their estimated useful lives may require revision and/or the carrying value of the related asset group may not be recoverable by its projected undiscounted cash flows. If the carrying value of the asset group is determined to be unrecoverable, an impairment charge would be recognized in an amount equal to the amount by which the carrying value of the asset group exceeds its fair value.

Provision for Income Taxes

Our provision for income taxes, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management's best assessment of estimated current and future taxes to be paid. The objectives for accounting for income taxes, as prescribed by the relevant accounting guidance, are to recognize the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities for future tax consequences of events that have been recognized in the financial statements. Deferred income taxes reflect the tax effect of temporary differences between asset and liability amounts that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. These deferred taxes are measured by applying currently enacted tax laws. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The assumptions about future tax consequences require significant judgment and variations in the actual outcome of these consequences could materially impact our results of operations. We recognize tax liabilities based on estimates of whether additional taxes and interest will be due. We adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense.

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Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Determination of valuation allowances recorded against deferred tax assets requires significant judgment and use of assumptions, including past operating results, estimates of future taxable income and the feasibility of tax planning strategies. To the extent that new information becomes available which causes us to change our judgment regarding the adequacy of existing valuation allowances, such changes to tax liabilities will impact income tax expense in the period in which such determination is made.

Components of Results of Operations

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

Cost of revenue (exclusive of depreciation and amortization, which are shown separately), or "Cost of revenue," primarily consists of fees paid to the physicians and other health professionals in the THMG Association provider network; product cost; costs incurred in connection with the THMG Association provider network operations and data center activities, which include employee-related expenses (including salaries and benefits, incentive compensation, and stock-based compensation); costs related to Client support; and provider network, medical records, magnetic resonance imaging, medical lab tests, translation, postage, medical malpractice insurance, and deferred device costs. Cost of revenue includes costs of technology enabling multiple modes of real-time communication, including via web browser, mobile application, voice / telephony, and text. These expenses increase or decrease as the level of revenue changes. Cost of revenue 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 access fees. Many of the elements of the cost of revenue 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 does not include an allocation of depreciation and amortization.

Advertising and Marketing Expenses

Advertising and marketing expenses consist primarily of costs of digital and media advertisements, personnel, and related expenses (including salaries and benefits, incentive compensation, and stock-based compensation) 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.

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, incentive-based awards, and stock-based compensation, employment taxes, travel 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.

Technology and Development Expenses

Technology and development expenses include the costs of operating our on-demand technology infrastructure that are not directly related to changes in revenue or volume of visits, including certain licensed applications, information technology infrastructure, security, and compliance. The technology and development line item also contains amounts charged to expense for research and development, which include costs of new product development, costs to add new features or improve reliability or scalability of existing applications, and other software development and engineering costs to the extent that they are not capitalized. The research and development expenses may enable future revenue growth but are not directly related to current revenues.

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Technology and development expenses include personnel and related expenses (including salaries and benefits, incentive compensation, and stock-based compensation) for software engineering, information technology infrastructure, security and compliance, product development, and support for our efforts to add new features and ensure the reliability or scalability of our existing solutions. Technology and development expenses also include outsourced software engineering services, the costs of operating our on-demand technology infrastructure (whereas costs directly associated with revenue are presented separately in cost of revenues), and certain licensed applications. Our technology and development expenses exclude capitalized software development costs and depreciation and amortization.

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, including the ability to capitalize software development costs.

General and Administrative Expenses

General and administrative expenses include personnel and related expenses (including salaries and benefits, incentive compensation, and stock-based compensation) of, and professional fees incurred by our finance, legal and compliance, operations, human resources, clinical, corporate strategy, business development, strategies, quality and executive departments. They also include bank charges, most of the facilities costs including rent, utilities, and facilities maintenance, except for amounts allocated to cost of revenues, as well as therapists recruiting costs, related to BetterHelp, indirect taxes and certain licensed corporate applications. Our general and administrative expenses exclude any allocation of depreciation and amortization.

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.

Restructuring Costs

Restructuring costs consist primarily of lease impairment costs, losses related to the reduction of office space, and costs for employee transition, severance payments, employee benefits, and related costs.

Acquisition, Integration, and Transformation Costs

Acquisition, integration, and transformation 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. It also includes costs related to certain business transformation initiatives focused on integrating and optimizing various operations and systems, including upgrading our CRM and ERP systems, incurred in connection with our acquisition and integration activities.

Amortization of Intangible Assets

Amortization of intangible assets consists of the amortization of capitalized software development costs and of acquisition-related intangible assets.

Depreciation of Property and Equipment

Depreciation of property and equipment consists of the depreciation of fixed assets.

Interest Income

Interest income primarily consists of interest earned on cash and cash equivalents.

Interest Expense

Interest expense consists of interest costs and the amortization of debt discounts primarily associated with convertible senior notes.

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Other Expense (Income), Net

Other expense (income), net includes the impact of foreign currency remeasurement, realized gains on investment securities, and all other non-operating items not included in other financial statement lines.

Provision for Income Taxes

Provision for income taxes reflects management’s best assessment of estimated current and future taxes to be paid. The objectives for accounting for income taxes, as prescribed by the relevant accounting guidance, are to recognize the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities for future tax consequences of events that have been recognized in the financial statements. See above for Critical Accounting Estimates and Policies.

Adjusted EBITDA, and Free Cash Flow

To supplement our financial information presented in accordance with U.S. generally accepted accounting principles (“GAAP”), we use certain non-GAAP financial measures to clarify and enhance an understanding of past performance, which include Adjusted EBITDA (as defined below) and free cash flow. We believe that the presentation of these financial measures enhances an investor’s understanding of our financial performance, and are commonly used by investors to evaluate our performance and that of our competitors. We further believe that these financial measures are useful to assess our operating performance and financial and business trends from period-to-period by excluding certain items that we believe are not representative of our core business, and that free cash flow reflects an additional way of viewing our liquidity that, when viewed together with GAAP results, provides management, investors, and other users of our financial information with a more complete understanding of factors and trends affecting our cash flows. We use these non-GAAP financial measures for business planning purposes and in measuring our performance relative to that of our competitors. We utilize Adjusted EBITDA as a key measure of our performance.

Adjusted EBITDA consists of net loss before provision for income taxes; other expense (income), net; interest income; interest expense; depreciation of property and equipment; amortization of intangible assets; restructuring costs; acquisition, integration, and transformation cost; goodwill impairment; and stock-based compensation.

Free cash flow is net cash provided by operating activities less capital expenditures and capitalized software development costs.

Our use of these non-GAAP terms may vary from that of others in our industry, and other companies may calculate such measures differently than we do, limiting their usefulness as comparative measures.

Non-GAAP measures have important limitations as analytical tools and you should not consider them in isolation, and they should not be considered as an alternative to net loss before provision for income taxes, net loss, net loss per share, net cash from operating activities or any other measures derived in accordance with GAAP. Some of these limitations are:

•Adjusted EBITDA eliminates the impact of the provision for income taxes on our results of operations, and does not reflect other expense (income), net, interest income, or interest expense;

•Adjusted EBITDA does not reflect restructuring costs. Restructuring costs may include certain lease impairment costs, certain losses related to early lease terminations, and severance;

•Adjusted EBITDA does not reflect significant acquisition, integration, and transformation costs. Acquisition, integration, and transformation 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. It also includes costs related to certain business transformation initiatives focused on integrating and optimizing various operations and systems, including upgrading our CRM and ERP systems. These transformation cost adjustments made to our results do not represent normal, recurring, operating expenses necessary to operate the business but rather, incremental costs incurred in connection with our acquisition and integration activities;

•Adjusted EBITDA does not reflect goodwill impairment charges; and

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

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

We compensate for these limitations by using these non-GAAP measures along with other comparative tools, together with GAAP measurements, to assist in the evaluation of operating performance. Such GAAP measurements include net loss, net loss per share, net cash provided by operating activities, 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 these non-GAAP measures should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.

Consolidated Results of Operations

The following table sets forth our consolidated statement of operations data for the years ended December 31, 2024 and 2023 and the dollar and percentage change between the respective periods (dollars in thousands, except per share data).

______________________________________

n/m – not meaningful

(1)Non-GAAP Financial Measures

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The following table reconciles net loss, the most directly comparable GAAP measure, to Adjusted EBITDA for the years ended December 31, 2024 and 2023 (in thousands):

Revenue. Total revenue was $2,569.6 million for the year ended December 31, 2024, compared to $2,602.4 million for the year ended December 31, 2023, a decrease of $32.8 million, or 1%. The decrease was driven by a 3% decrease in access fees, primarily related to BetterHelp, offset by an 11% increase in other revenues. The increase in other revenues primarily related to higher visit revenues. By geography, total revenue for the U.S. was $2,160.0 million and for International was $409.6 million for the year ended December 31, 2024, reflecting a decrease of 3% and an increase of 12%, respectively, compared to the year ended December 31, 2023.

Cost of Revenue (exclusive of depreciation and amortization, which are shown separately below). Cost of revenue was $751.3 million for the year ended December 31, 2024, compared to $760.0 million for the year ended December 31, 2023, a decrease of $8.8 million, or 1%. The decrease was primarily driven by lower provider and technology costs, partially offset by higher amortization of device costs.

Advertising and Marketing Expenses. Advertising and marketing expenses were $705.8 million for the year ended December 31, 2024, compared to $688.9 million for the year ended December 31, 2023, an increase of $16.9 million, or 2%. This increase was substantially driven by higher media advertising costs, partially offset by lower employee compensation costs.

Sales Expenses. Sales expenses were $205.0 million for the year ended December 31, 2024, compared to $213.8 million for the year ended December 31, 2023, a decrease of $8.8 million, or 4%. The decrease was primarily driven by lower employee compensation, partially offset by higher professional fees and broker commissions.

Technology and Development Expenses. Technology and development expenses were $307.3 million for the year ended December 31, 2024, compared to $348.5 million for the year ended December 31, 2023, a decrease of $41.2 million, or 12%. The decrease was primarily driven by lower employee compensation costs, partially offset by higher infrastructure, hosting, and software license costs associated with running operations as well as ongoing projects and services to continuously improve and optimize our products and services. For the years ended December 31, 2024 and 2023, research and development costs were $89.1 million and $124.6 million, respectively.

General and Administrative Expenses. General and administrative expenses were $435.5 million for the year ended December 31, 2024, compared to $464.7 million for the year ended December 31, 2023, a decrease of $29.2 million,

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or 6%. The decrease was primarily driven by lower employee compensation and therapist onboarding costs, partially offset by higher legal fees and software and infrastructure costs.

Goodwill Impairment. As discussed earlier under the section "Critical Accounting Estimates and Policies: Goodwill," we recorded a non-cash goodwill impairment charge of $790.0 million for the year ended December 31, 2024. The non-cash charge was not deductible for income tax purposes.

Acquisition, Integration, and Transformation Costs. Acquisition, integration, and transformation costs were $1.7 million for the year ended December 31, 2024, compared to $21.1 million for the year ended December 31, 2023, a decrease of $19.4 million, as we wrap up the upgrading of our CRM and ERP systems.

Restructuring Costs. Restructuring costs were $20.4 million and $16.9 million for the years ended December 31, 2024 and 2023, respectively. The costs primarily related to the reduction of office space, severance, right-of-use asset impairment charges and other restructuring related costs. See Note 12. ‘Restructuring” to the financial statements for additional information.

Amortization of Intangible Assets.

The following table shows amortization of intangible assets broken down by components for the periods indicated (in thousands):

Amortization of intangible assets was $363.4 million for the year ended December 31, 2024, compared to $325.9 million for the year ended December 31, 2023, an increase of $37.4 million, or 11%. The higher expense was driven by an increase in the amortization of capitalized software development costs related to our investment in platforms, partially offset by lower amortization of acquired intangibles due to certain trademarks becoming fully amortized.

In the second half of 2023, we initiated a strategy to transition the majority of our chronic condition management Clients and members to the Teladoc Health brand on a phased basis, with a smaller subset continuing to be served under the Livongo trade name beyond 2024. In connection with the brand strategy, we accelerated the amortization of intangible assets that are associated with the Livongo trademark, increasing amortization of intangible assets expense beginning in the second half of the year ended December 31, 2023 and continuing through the year ended December 31, 2024, with corresponding reductions thereafter.

Depreciation of Property and Equipment. Depreciation of property and equipment was $10.2 million for the year ended December 31, 2024, compared to $11.1 million for the year ended December 31, 2023, a decrease of $1.0 million, or 9%.

Interest Income. Interest income was $57.1 million for the year ended December 31, 2024, compared to $46.8 million for the year ended December 31, 2023. The increase was primarily driven by an increase in the average cash and cash equivalent balance.

Interest Expense. Interest expense was $23.8 million for the year ended December 31, 2024, compared to $22.3 million for the year ended December 31, 2023.

Other Expense (Income), Net. Other expense (income), net was an expense of $6.0 million for the year ended December 31, 2024, compared to an income of $4.4 million for the year ended December 31, 2023, primarily reflecting losses on foreign currency exchange rate fluctuations for the year ended December 31, 2024, whereas the year ended December 31, 2023 reflected a gain on the partial sale of a business, partially offset by losses on foreign currency exchange rate fluctuations.

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Provision for Income Taxes. We recorded income tax expense of $7.6 million for the year ended December 31, 2024, compared to $0.8 million for the year ended December 31, 2023. The income tax provision for the year ended December 31, 2024 reflects the current year operational loss and the impact of lower stock-based compensation deductions for tax purposes compared to the stock-based compensation expense recorded in the consolidated statement of operations.

Segment Information

The following tables set forth the results of operations by segment for the years ended December 31, 2024 and 2023 (dollars in thousands):

_________________________________________

(1)Other segment expenses include advertising and marketing expenses, sales expenses, technology and development expenses, and general and administrative expenses, each exclusive of stock-based compensation.

Integrated Care total revenues increased by $60.1 million, or 4%, to $1,528.9 million for the year ended December 31, 2024. The increase in net revenues was primarily driven by higher chronic care program enrollment and adoption, as well as higher telemedicine product revenue.

Integrated Care cost of revenue, exclusive of depreciation, amortization, and stock-based compensation, increased by $34.0 million, or 8%, to $475.0 million for the year ended December 31, 2024. The increase was primarily driven by higher provider costs and amortization of device costs, partially offset by lower technology costs.

Integrated Care other segment expenses decreased by $14.9 million, or 2%, to $821.0 million for the year ended December 31, 2024. The decrease was primarily driven by lower employee compensation, partially offset by higher software and infrastructure costs, legal and regulatory costs, and advertising costs, as well as higher commissions and professional fees.

_________________________________________

(1)Other segment expenses include sales expenses, technology and development expenses, and general and administrative expenses, each exclusive of stock-based compensation.

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BetterHelp total revenues decreased by $92.9 million, or 8%, to $1,040.7 million for the year ended December 31, 2024, driven by an 11% decrease in average monthly paying users.

BetterHelp cost of revenue, exclusive of depreciation, amortization, and stock-based compensation decreased by $42.0 million, or 13%, to $271.5 million for the year ended December 31, 2024. The decrease was primarily driven by lower therapist costs.

BetterHelp advertising and marketing, exclusive of stock-based compensation increased by $16.9 million, or 3%, to $558.8 million for the year ended December 31, 2024, primarily reflecting higher spending on digital and media advertising.

BetterHelp other segment expenses decreased by $9.4 million, or 7%, to $132.6 million for the year ended December 31, 2024. The decrease was primarily driven by lower therapist recruiting and retention costs, lower employee related costs, and lower credit card processing fees, partially offset by higher legal and regulatory fees and higher software and infrastructure costs.

Liquidity and Capital Resources

The following table presents a summary of our cash flow activity for the years ended December 31, 2024 and 2023 (in thousands):

Our principal source of liquidity is our cash and cash equivalents, totaling $1,298.3 million as of December 31, 2024. During 2024, we experienced positive operating cash flow and we also anticipate continuing positive operating cash flows for 2025.

We believe that our existing cash and cash equivalents will be sufficient to meet our working capital, capital expenditure, and contractual obligation 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, our ability to retain and/or obtain new members, 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, the continuing market acceptance of telehealth, and our debt service obligations. We may in the future enter into arrangements to acquire or invest in additional complementary businesses, services, technologies, and intellectual property rights. We may be required to seek additional equity or debt financing to fund working capital, capital expenditures and acquisitions, and to settle debt obligations. 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, which would adversely affect our business, financial condition, and results of operations.

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

An aggregate principal amount of $550.7 million of our convertible senior notes is due in 2025. See Note 10. “Convertible Senior Notes” to the consolidated financial statements for additional information on our convertible senior notes.

We were in compliance with all debt covenants at December 31, 2024.

We routinely enter into contractual obligations with third parties to provide professional services, licensing, and other products and services in support of our ongoing business. The current estimated cost of these contracts is not expected to be significant to our liquidity and capital resources based on contracts in place as of December 31, 2024.

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Cash from Operating Activities

Cash flows provided by operating activities consisted of net loss adjusted for certain non-cash items and the cash effect of changes in assets and liabilities. Cash provided by operating activities was $293.7 million and $350.0 million for the years ended December 31, 2024 and 2023, respectively, a decrease of $56.3 million. The decrease was driven by higher incentive compensation payments. Cash provided by operating activities for the years ended December 31, 2024 and 2023 included approximately $3.7 million and $15.6 million, respectively, of payments made related to investments in and implementation of cloud computing applications, which are deferred and amortized over multiple years based on the expected contract life.

The primary uses of cash from operating activities are for the payment of cash compensation, provider fees, engagement marketing, direct-to-consumer digital and media advertising, inventory, insurance, technology costs, interest expense and acquisition, integration, and transformation costs. Historically, cash compensation is at its highest level in the first quarter when discretionary employee compensation related to the previous fiscal year is paid.

Cash from Investing Activities

Cash used in investing activities was $124.1 million for the year ended December 31, 2024 and primarily consisted of capitalized software development costs of $113.3 million and capital expenditures of $10.8 million. Cash used in investing activities for the year ended December 31, 2023 of $156.3 million, and consisted primarily of capitalized software development costs of $144.9 million and capital expenditures of $11.5 million. The decrease of $32.3 million was primarily driven by lower capitalized software development costs.

Cash from Financing Activities

Cash provided by financing activities for the year ended December 31, 2024 was $8.3 million and primarily consisted of $3.6 million of proceeds from the exercise of employee stock options and $4.7 million of proceeds from participants in our employee stock purchase plan. Cash provided by financing activities for the year ended December 31, 2023 was $10.9 million and primarily consisted of $1.5 million of proceeds from the exercise of employee stock options and $9.7 million of proceeds from participants in our employee stock purchase plan.

The following is a reconciliation of net cash provided by operating activities to free cash flow (in thousands, unaudited):

Free cash flow was $169.6 million for the year ended December 31, 2024, as compared to $193.7 million for the year ended December 31, 2023. The year-over-year decrease was substantially driven by a decline in operating cash flow, partially offset by a decline in capitalized software.

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Discussion and analysis of our fiscal year 2021, as well as the year-over-year comparison of our 2022 financial performance to 2021, have been omitted from this section and may be found under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 that was filed with the SEC on March 1, 2023.

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,” the “Company,” or “we.” The Company’s principal executive office is located in Purchase, New York. Teladoc Health is the global leader in whole person virtual care focused on forging a new healthcare experience with better convenience, outcomes, and value around the world.

We were founded on a simple, yet revolutionary idea: that everyone should have access to the best healthcare, anywhere in the world on their terms. Today, we have a vision of making virtual care the first step on any healthcare journey, and we are delivering on this mission by providing whole person virtual care that includes primary care, mental health, chronic condition management, and more.

We believe that favorable existing secular trends in the healthcare industry were accelerated by the impacts of the COVID-19 pandemic, driving greater consumer awareness and use of virtual care and increased adoption by employers, health plans, hospitals and health systems, healthcare providers, and individuals. 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, affordable, and high-quality care; empower individuals to manage and improve their health; and enable providers to offer their best care for their patients.

Efficiency Program and Restructuring

We have a demonstrated record of driving growth both organically and through acquisitions. We have built a strong and durable foundation for efficient growth, increasing profitability, and generating cash flow. We are taking additional concrete steps to further accelerate our progress on bottom line performance in order to achieve a more balanced approach to growth and margin. This focus on balanced growth includes a comprehensive operational review of our business to drive efficiencies to continue to support our growth. These steps are expected to result in restructuring costs in the year ending December 31, 2024. See Note 19. ‘Subsequent Events” to the consolidated financial statements for additional information.

Key Factors Affecting Our Performance

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

As it relates to the Integrated Care segment:

Number of U.S. Integrated Care Members. U.S. Integrated Care members represent the number of unique individuals who have paid access and visit fee only access to our suite of integrated care services in the U.S. at the end of the applicable period. Our revenue growth rate and long-term profitability are affected by our ability to increase cross selling capability among our existing members over time because we derive a substantial portion of our revenue from access and other fees via Client contracts that provide members access to our professional provider network in exchange for a contractual based periodic fee. Therefore, we believe that our ability to add new members and retain existing members and to increase utilization and penetration further into existing and new health plan and employer Clients is a key indicator of our increasing market adoption, the growth of our business, and our future revenue potential. We further believe 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. U.S. Integrated Care members increased by 6.3 million, or 8%, to 89.6 million at December 31, 2023, compared to the same period in 2022.

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Chronic Care Program Enrollment. Chronic care program enrollment represents the total number of enrollees across our suite of chronic care programs at the end of a given period. Our chronic care program enrollments are one of the key components of our whole person virtual care platform that we believe positions us to drive greater engagement with our platforms and increased revenue. Chronic care program enrollment increased by 14% to 1.16 million at December 31, 2023, compared to 1.02 million at December 31, 2022.

Average Monthly Revenue Per U.S. Integrated Care Member. Average monthly revenue per U.S. Integrated Care member measures the average monthly amount of global revenue that we generate from a U.S. Integrated Care member for a particular period. It is calculated by dividing the total revenue generated from the Integrated Care segment by the average number of U.S. Integrated Care members during the applicable period. Approximately 20% of total Integrated Care revenues relates to international and hospital and health systems for which membership is not considered as a management metric. We believe that our ability to increase the revenue generated from each member over time is also a key indicator of our increasing market adoption, the growth of our business, and future revenue potential. Average monthly revenue per U.S. Integrated Care member decreased to $1.41 in the year ended December 31, 2023, from $1.42 in the same period in 2022, primarily due to the impact of new members onboarded over the course of the year. The change in average monthly revenue versus the indicated prior period is reflective of the growth and timing of onboarding new members and the mix of their fees.

As it relates to the BetterHelp segment:

BetterHelp Paying Users. BetterHelp paying users represent the average number of global monthly paying users of our BetterHelp therapy services during the applicable period. We believe that our ability to add new paying users and retain existing users is a key indicator of the increasing market adoption of BetterHelp, the growth of that business, and future revenue potential. Our ability to reach new potential paying users through various advertising channels helped us to increase BetterHelp paying users by 9% to 0.46 million as of December 31, 2023, compared to 0.42 million as of December 31, 2022.

As it relates to the Company:

Seasonality. Our business has historically been subject to seasonality. In our Integrated Care segment, a concentration of our new Client contracts have an effective date of January 1 as a result of many Clients’ introduction of new services at the start of each calendar year. Therefore, while membership increases, utilization and enrollment rates are dampened until service delivery ramps up over the course of the year. In addition, as a result of seasonal cold and flu trends, we historically have experienced our highest level of visit and other fee revenue during the first and fourth quarters of each year.

Due to the higher cost of customer acquisition during the end-of-year holiday season, our BetterHelp segment has historically reduced marketing activity during the fourth quarter. As a result of this dynamic, we have typically experienced fewer new member additions and the strongest operating income performance in the fourth quarter. Conversely, as marketing activity typically resumes at the start of the year, we typically experience the weakest operating income performance during the first quarter as new customer acquisition and revenue growth lags marketing spend.

See “Risk Factors—Risks Related to Our Business and Industry—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.

Critical Accounting Estimates and Policies

Revenue

We follow the revenue accounting requirements of Accounting Standards Codification (“ASC”) Topic 606, which establishes a principle for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The core principle of ASC Topic 606 is to recognize revenue to depict the transfer of promised goods or services to Clients as well as individual members, in an amount that reflects the consideration the entity expects to be entitled in exchange for those goods or services. This principle is achieved through applying the following five-step approach:

•Identification of the contract, or contracts, with a Client.

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•Identification of the performance obligations in the contract.

•Determination of the transaction price.

•Allocation of the transaction price to the performance obligations in the contract.

•Recognition of revenue when, or as, we satisfy a performance obligation.

Integrated Care Segment

As it relates to the Integrated Care segment, we primarily 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 (“PMPM”) access fee as well as certain contracts that also include additional revenue on a per-virtual healthcare visit basis for general medical, or other specialty visits or expert medical service on a per case basis. We also have certain contracts that generate revenue based solely on a per healthcare visit basis for general medical and other specialty visits.

We record access fees from Clients accessing our professional provider network or hosted virtual healthcare platform or chronic care management platforms, visit fee revenue for general medical, expert medical service and other specialty visits as well as other revenue primarily associated with virtual healthcare device equipment included with our hosted virtual healthcare platform. Visit and other revenues are reported as “Other” revenue in our consolidated financial statements.

Revenue is also generated from contracts with Clients in hospital and health systems for the sale and rental of equipment consisting of virtual healthcare devices which allow physicians to access our hosted virtual healthcare platform. These contracts also include multiple performance obligations, and we determine the standalone selling prices based on overall pricing objectives. In some arrangements, our devices are rented to certain qualified Clients that qualify as either sales-type lease or operating lease arrangements and are subject to lease accounting guidance.

Revenue is also generated from contracts with Clients for our chronic care management solutions. Substantially all of this revenue is derived from monthly access fees that are recognized as services are rendered and earned under subscription agreements with Clients that are based on a per-participant-per-month model, using the number of active enrolled members each month for the minimum enrollment period. These solutions integrate devices, supplies, access to our web-based platform, and clinical and data services to provide an overall health management solution. The promises to transfer these goods and services are not separately identifiable and are considered a single continuous service comprised of a series of distinct services that are substantially the same and have the same pattern of transfer (i.e., distinct days of service). These services are consumed as they are received, and we recognize revenue each month using the variable consideration allocation exception since the nature of the obligations and the variability of the payment being based on the number of active members are aligned.

Our Client agreements generally have a term of one to three years for the Integrated Care segment. The majority of Clients have a term of one year and renew their contracts following their first year of services. Revenues are recognized when we satisfy our performance obligation to stand ready to provide virtual healthcare services which occurs when our Clients and members have access to and obtain control of the virtual healthcare service or platform.

For contracts where revenue is generated on a per healthcare visit basis, revenues are recognized when the visits are completed as we have delivered on our stand ready obligation to provide access. 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.

We generally bill for virtual healthcare services on a monthly basis, in advance or in arrears depending on the service, with payment terms generally being 30 days. There are not significant differences between the timing of revenue recognition and billing. Consequently, we have 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 for certain contracts include a variable transaction price as the number of members may vary from period to period. We estimate this amount based on historical experience.

Our contracts do not generally contain refund provisions for fees earned related to services performed.

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Additionally, 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 or other value achievements or guarantees, and health outcome guarantees. Performance guarantees are estimated at each reporting period based on our historical performance or other available information of the underlying criteria or the customer’s specific performance as of that reporting date. Any estimated adjustments to the contract price for achieving or not achieving the performance guarantee are recognized as an adjustment to revenue in the period. For the years ended December 31, 2023 and 2022, revenue recognized from performance obligations related to prior periods for changes in estimated transaction price or Client performance guarantees was $14.7 million and $4.4 million, respectively.

We have elected the optional exemption to not disclose the remaining performance obligations of our contracts since the majority 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.

For additional revenue, deferred revenue, deferred costs, and disclosures, refer to Note 3. “Revenue, Deferred Revenue, and Deferred Costs and Other.”

BetterHelp Segment

As it relates to the BetterHelp segment, users can purchase virtual therapy services for an access fee, generally on a monthly basis. For other wellness services, users can purchase access to their consumer application for a subscription fee, generally for a period of one year. BetterHelp also provides virtual therapy services to employers as part of employee assistance programs, with revenues recorded based on completion of visit.

The BetterHelp service provides for member refunds. We estimate the expected amount of refunds to be issued based on historical experience, which are recorded as a reduction of revenue. We issued refunds of approximately $93.0 million and $79.2 million for the years ended December 31, 2023 and 2022, respectively.

Goodwill

Goodwill represents the excess of the total purchase consideration over the fair value of the identifiable assets acquired and liabilities assumed in a business combination. Goodwill is not amortized but is tested for impairment at the reporting unit level annually on October 1 or more frequently if events or changes in circumstances indicate that it is more likely than not to be impaired. These events include: (i) severe adverse industry or economic trends; (ii) significant company-specific actions, including exiting an activity in conjunction with restructuring of operations; (iii) current, historical or projected deterioration of our financial performance; or (iv) a sustained decrease in our market capitalization, as indicated by our publicly quoted share price.

As of December 31, 2023, our balance of goodwill was $1.1 billion, which all related to the BetterHelp segment.

We performed a qualitative assessment of goodwill for the BetterHelp reporting unit as of October 1, 2023. As part of the qualitative analysis, we considered the performance of the reporting unit compared to expectations, forecasts for revenue and margin, macroeconomic conditions, industry and market trends, as well as other relevant entity-specific items. Based on this qualitative assessment, no indicators of impairment were identified for the year ended December 31, 2023. While it is believed that the assumptions used were reasonable, changes in these assumptions for the BetterHelp reporting unit, including lowering forecasts for revenue and margin, lowering the long-term growth rate, or changes in the future discount rate assumptions, could result in a future impairment.

For the year ended December 31, 2022, a $13.4 billion non-deductible goodwill impairment charge, or $83.01 per basic and diluted share, was recognized following goodwill impairment testings performed as a result of sustained decreases in our publicly quoted share price and our annual testing requirement. Refer to Note 6. “Goodwill,” to our consolidated financial statements for further information.

Other Intangible Assets

Other intangible assets include customer relationships, non-compete agreements, acquired technology, and trademarks resulting from business acquisitions, as well as capitalized software development costs. As of December 31, 2023, the aggregate balance of these assets was $1,677.8 million. We amortize these definite-lived intangible assets over their estimated useful lives as disclosed in Note 8. “Intangible Assets, Net and Certain Cloud Computing Costs” to the

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consolidated financial statements. We also review the useful lives on a quarterly basis to determine if the period of economic benefit has changed. Potential changes in useful lives, whether due to strategic decisions involving our brands, competitive forces, or other factors could result in additional amortization expense taking effect prospectively in the period of the change and could have a material impact on our consolidated financial statements.

Customer relationships are amortized over a period of two to 20 years in relation to expected future cash flows. The useful lives of the customer relationships are subject to risks and uncertainties including future attrition rates. These considerations include, but are not limited to, the emergence of new competitor offerings, relative competitor pricing and scale, our ability to successfully integrate and manage the acquired customers, our level of success in delivering future innovation, and overall changes in economic and regulatory conditions. Significant changes in any one or a combination of considerations could lead us to update our weighted average attrition rate, which, in turn would impact the assigned useful life and the level of amortization expense recorded for our customer relationship intangibles. For example, a sustained increase in the customer attrition rate related to customers acquired in the Livongo transaction could prompt us to reduce our estimate of the remaining useful life of the customer relationships. Should this occur, a one-year reduction to the estimated life would result in an annual increase in amortization expense of approximately $6 million. Acquired technology is amortized over four to seven years using the straight-line method. Capitalized software development costs are amortized over three to five years using the straight-line method.

During the second half of 2023, we initiated a strategy to transition the majority of our chronic condition management Clients and members to the Teladoc Health brand on a phased basis, with a smaller subset continuing to be served under the Livongo trade name beyond 2024. In connection with the brand strategy, we have accelerated the amortization associated with the Livongo trademark, increasing amortization expense in the year ended December 31, 2023, and in the year ending December 31, 2024, with corresponding reductions thereafter. The change in accounting estimate resulted in additional amortization expense of $37.5 million, or $0.23 per basic and diluted share, for the year ended December 31, 2023.

Definite-lived intangible assets are re-evaluated whenever events or changes in circumstances indicate that their estimated useful lives may require revision and/or the carrying value of the related asset group may not be recoverable by its projected undiscounted cash flows. If the carrying value of the asset group is determined to be unrecoverable, an impairment charge would be recognized in an amount equal to the amount by which the carrying value of the asset group exceeds its fair value. As a result of the introduction of segments in the fourth quarter of 2022, a recoverability test for the definite-lived intangible assets was performed and no impairment was identified.

Provision for Income Taxes

Our provision for income taxes, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management's best assessment of estimated current and future taxes to be paid. The objectives for accounting for income taxes, as prescribed by the relevant accounting guidance, are to recognize the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities for future tax consequences of events that have been recognized in the financial statements. Deferred income taxes reflect the tax effect of temporary differences between asset and liability amounts that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. These deferred taxes are measured by applying currently enacted tax laws. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The assumptions about future tax consequences require significant judgment and variations in the actual outcome of these consequences could materially impact our results of operations. We recognize tax liabilities based on estimates of whether additional taxes and interest will be due. We adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense.

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Determination of valuation allowances recorded against deferred tax assets requires significant

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judgment and use of assumptions, including past operating results, estimates of future taxable income and the feasibility of tax planning strategies. To the extent that new information becomes available which causes us to change our judgment regarding the adequacy of existing valuation allowances, such changes to tax liabilities will impact income tax expense in the period in which such determination is made.

Components of Results of Operations

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

Cost of revenue (exclusive of depreciation and amortization, which are 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 (including salaries and benefits, incentive compensation, and stock-based compensation); costs related to Client support; and provider network, medical records, magnetic resonance imaging, medical lab tests, translation, postage, medical malpractice insurance, and deferred device costs. Cost of revenue includes costs of technology enabling multiple modes of real-time communication, including via web browser, mobile application, voice / telephony, and text. These expenses increase or decrease as the level of revenue changes. Cost of revenue (exclusive of depreciation and amortization, which are 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 access fees. Many of the elements of the cost of revenue (exclusive of depreciation and amortization, which are 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 are 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 and media advertisements, personnel, and related expenses (including salaries and benefits, incentive compensation, and stock-based compensation) 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.

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, and incentive-based awards, 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.

Technology and Development Expenses

Technology and development expenses include the costs of operating our on-demand technology infrastructure that are not directly related to changes in revenue or volume of visits, including certain licensed applications, information technology infrastructure, security, and compliance. The technology and development line item also contains amounts charged to expense for research and development, which include costs of new product development, costs to add new features or improve reliability or scalability of existing applications, and other software development and engineering costs to the extent that they are not capitalized. The research and development expenses may enable future revenue growth but are not directly related to current revenues.

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Technology and development expenses include personnel and related expenses (including salaries and benefits, incentive compensation, and stock-based compensation) for software engineering, information technology infrastructure, security and compliance, product development, and support for our efforts to add new features and ensure the reliability or scalability of our existing solutions. Technology and development expenses also include outsourced software engineering services, the costs of operating our on-demand technology infrastructure (whereas costs directly associated with revenue are presented separately in cost of revenues), and certain licensed applications. Our technology and development expenses exclude capitalized software development costs and depreciation and amortization.

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, including the ability to capitalize software development costs.

General and Administrative Expenses

General and administrative expenses include personnel and related expenses (including salaries and benefits, incentive compensation, and stock-based compensation) of, and professional fees incurred by our finance, legal and compliance, operations, human resources, clinical, corporate strategy, business development, strategies, quality and executive departments. They also include bank charges, most of the facilities costs including rent, utilities, and facilities maintenance, except for amounts allocated to cost of revenues, as well as therapists recruiting costs, related to BetterHelp, indirect taxes and certain licensed corporate applications. Our general and administrative expenses exclude any allocation of depreciation and amortization.

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.

Acquisition, Integration, and Transformation Costs

Acquisition, integration, and transformation 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. It also includes costs related to certain business transformation initiatives focused on integrating and optimizing various operations and systems, including upgrading our CRM and ERP systems, incurred in connection with our acquisition and integration activities.

Restructuring Costs

Restructuring costs consist primarily of lease impairment costs, losses related to the reduction of office space, and costs for employee transition, severance payments, employee benefits, and related costs.

Depreciation

Depreciation consists primarily of depreciation of fixed assets.

Amortization

Amortization consists primarily of amortization of capitalized software development costs, and amortization of acquisition-related intangible assets.

Loss on Extinguishment of Debt

Loss on extinguishment of debt consists of costs associated with debt refinancing including the write-off of origination and termination financing fees and the redemption/conversion of convertible senior notes.

Interest Income

Interest income consists of interest earned on cash and cash equivalents.

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Interest Expense

Interest expense consists of interest costs and the amortization of debt discounts primarily associated with convertible senior notes.

Other (Income) Expense, Net

Other (income) expense, net includes the impact of foreign currency remeasurement, realized gains on investment securities, and all other non-operating items not included in other financial statement lines.

Provision for Income Taxes

Provision for income taxes reflects management’s best assessment of estimated current and future taxes to be paid. The objectives for accounting for income taxes, as prescribed by the relevant accounting guidance, are to recognize the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities for future tax consequences of events that have been recognized in the financial statements. See above for Critical Accounting Estimates and Policies.

EBITDA, Adjusted EBITDA, and Free Cash Flow

To supplement our financial information presented in accordance with U.S. generally accepted accounting principles (“GAAP”), we use non-GAAP financial measures to clarify and enhance an understanding of past performance, which include EBITDA (as defined below), Adjusted EBITDA, and free cash flow. We believe that the presentation of these financial measures enhances an investor’s understanding of our financial performance, and are commonly used by investors to evaluate our performance and that of our competitors. We further believe that these financial measures are useful financial metrics to assess our operating performance and financial and business trends from period-to-period by excluding certain items that we believe are not representative of our core business, and that free cash flow reflects an additional way of viewing our liquidity that, when viewed together with GAAP results, provides management, investors, and other users of our financial information with a more complete understanding of factors and trends affecting our cash flows. We use these non-GAAP financial measures for business planning purposes and in measuring our performance relative to that of our competitors. We utilize Adjusted EBITDA as a key measure of our performance.

EBITDA consists of net loss before interest income; interest expense; other (income) expense, net, including foreign currency exchange gains or losses; provision for income taxes; depreciation; amortization; and goodwill impairment. Adjusted EBITDA consists of net loss before interest income; interest expense; other (income) expense, net, including foreign currency exchange gains or losses; provision for income taxes; depreciation; amortization; goodwill impairment; stock-based compensation; restructuring costs; and acquisition, integration, and transformation costs.

Free cash flow is net cash provided by operating activities less capital expenditures and capitalized software development costs.

Our use of these non-GAAP terms may vary from that of others in our industry, and other companies may calculate such measures differently than we do, limiting their usefulness as comparative measures.

Non-GAAP measures have important limitations as analytical tools and you should not consider them in isolation, and they should not be considered as an alternative to net loss before provision for income taxes, net loss, net loss per share, net cash from operating activities or any other measures derived in accordance with GAAP. Some of these limitations are:

•EBITDA and Adjusted EBITDA eliminate the impact of the provision for income taxes on our results of operations, and they do not reflect goodwill impairment, interest income, interest expense or other (income) expense, net;

•Adjusted EBITDA does not reflect restructuring costs. Restructuring costs may include certain lease impairment costs, certain losses related to early lease terminations, and severance;

•Adjusted EBITDA does not reflect significant acquisition, integration, and transformation costs. Acquisition, integration, and transformation 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. It also includes costs related to certain business transformation initiatives focused

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on integrating and optimizing various operations and systems, including upgrading our CRM and ERP systems. These transformation cost adjustments made to our results do not represent normal, recurring, operating expenses necessary to operate the business but rather, incremental costs incurred in connection with our acquisition and integration activities; and

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

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 these non-GAAP measures along with other comparative tools, together with GAAP measurements, to assist in the evaluation of operating performance. Such GAAP measurements include net loss, net loss per share, net cash provided by operating activities, 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 these non-GAAP measures should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.

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Consolidated Results of Operations

The following table sets forth our consolidated statement of operations data for the years ended December 31, 2023 and 2022 and the dollar and percentage change between the respective periods (dollars in thousands).

______________________________________

n/m – not meaningful

(1)Non-GAAP Financial Measures

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The following table reconciles net loss, the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA for the years ended December 31, 2023 and 2022 (in thousands):

Revenue. Total revenue was $2,602.4 million for the year ended December 31, 2023, compared to $2,406.8 million for the year ended December 31, 2022, an increase of $195.6 million, or 8%. The increase was driven by an 8% increase in access fees, primarily related to BetterHelp, as well as a 6% increase in other revenues. The increase in other revenues primarily related to higher revenues from sales of our telehealth solutions for hospitals and health systems. By geography, total revenue for the U.S. was $2,237.5 million and for International was $364.9 million for the year ended December 31, 2023, reflecting increases of 6% and 19%, respectively, compared to the year ended December 31, 2022.

Cost of Revenue (exclusive of depreciation and amortization, which are shown separately below). Cost of revenue was $760.0 million for year ended December 31, 2023, compared to $744.0 million for the year ended December 31, 2022, an increase of $16.0 million, or 2%, reflecting higher costs associated with the growth in revenue, offset by lower consultation costs, reflecting various operation optimization efforts to reduce provider costs, and lower expenses associated with devices.

Advertising and Marketing Expenses. Advertising and marketing expenses were $688.9 million for the year ended December 31, 2023, compared to $623.5 million for the year ended December 31, 2022, an increase of $65.3 million, or 10%. This increase was substantially driven by higher digital and media advertising costs related to BetterHelp.

Sales Expenses. Sales expenses were $213.8 million for the year ended December 31, 2023, compared to $227.2 million for the year ended December 31, 2022, a decrease of $13.4 million, or 6%. The decrease was primarily driven by lower employee compensation as well as lower sales and broker commissions.

Technology and Development Expenses. Technology and development expenses were $348.5 million for the year ended December 31, 2023, compared to $333.6 million for the year ended December 31, 2022, an increase of $14.9 million, or 4%. The increase was primarily driven by higher infrastructure, hosting, and software license costs associated with running operations and ongoing projects and services to continuously improve and optimize our products and services, partially offset by lower professional fees and contract labor costs and lower recruiting and employee-related costs. For the

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year ended December 31, 2023 and 2022, research and development costs were $124.6 million and $106.9 million, respectively.

General and Administrative Expenses. General and administrative expenses were $464.7 million for the year ended December 31, 2023, compared to $449.9 million for the year ended December 31, 2022, an increase of $14.8 million, or 3%. The increase was primarily driven by higher employee compensation costs, call center costs, corporate and other costs, credit card charges, software and infrastructure costs, and bad debt reserves, partially offset by lower therapist onboarding costs, other professional and consultant fees, occupancy costs, operational costs including indirect taxes, insurance costs, and legal and regulatory costs.

Acquisition, Integration, and Transformation Costs. Acquisition, integration, and transformation costs were $21.1 million for the year ended December 31, 2023, compared to $15.6 million for the year ended December 31, 2022, an increase of $5.5 million. The costs and the related increase were primarily associated with integrating and upgrading our CRM and ERP systems.

Restructuring Costs. Restructuring costs were $16.9 million and $7.4 million for the year ended December 31, 2023 and 2022, respectively. The costs primarily consisted of losses related to the reduction of office space and severance. See Note 12. ‘Restructuring” to the financial statements for additional information.

Depreciation. Depreciation was $11.1 million for the year ended December 31, 2023, compared to $11.4 million for the year ended December 31, 2022, a decrease of $0.3 million, or 2%.

Amortization.

The following table shows amortization broken down by components for the periods indicated (in thousands):

Amortization was $325.9 million for the year ended December 31, 2023, compared to $244.6 million for the year ended December 31, 2022, an increase of $81.3 million, or 33%. The higher expense was driven by higher amortization due to the acceleration of certain trademark lives as well as an increase in the amortization of capitalized software costs related to our investment in platforms. In the second half of 2023, we initiated a strategy to transition the majority of our chronic condition management Clients and members to the Teladoc Health brand on a phased basis, with a smaller subset continuing to be served under the Livongo trade name beyond 2024. In connection with the brand strategy, we accelerated the amortization associated with the Livongo trademark, increasing amortization expense in the year ended December 31, 2023 and in the year ending December 31, 2024, with corresponding reductions thereafter. The change in accounting estimate resulted in additional amortization expense for acquired intangibles of $37.5 million, or $0.23 per basic and diluted share, for the year ended December 31, 2023.

Goodwill Impairment. No goodwill impairment charge was recognized for the year ended December 31, 2023. We recorded non-cash goodwill impairment charges of $13,402.8 million across several quarters in the year ended December 31, 2022, following goodwill impairment testings performed as a result of sustained decreases in our publicly quoted share price and our annual testing requirement. The non-cash charges had no impact on the provision for income taxes. Refer to Critical Accounting Estimates and Policies: Goodwill and Note 6. “Goodwill,” to our consolidated financial statements.

Interest Income. Interest income consisted of interest earned on cash and cash equivalents. Interest income was $46.8 million for the year ended December 31, 2023, compared to $12.7 million for the year ended December 31, 2022. The increase was primarily driven by higher interest rate yields and, to a lesser extent, an increase in cash and cash equivalent balances.

Interest Expense. Interest expense consisted of interest costs and the amortization of debt discounts primarily associated with the convertible senior notes. Interest expense was $22.3 million for the year ended December 31, 2023, compared to $21.9 million for the year ended December 31, 2022.

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Other (Income) Expense, Net. Other (income) expense, net was an income of $4.4 million for the year ended December 31, 2023, compared to an expense of $0.9 million for the year ended December 31, 2022, primarily reflecting a gain on the partial sale of a business.

Provision for Income Taxes. We recorded an income tax expense of $0.8 million for the year ended December 31, 2023, compared to an income tax benefit of $3.8 million for the year ended December 31, 2022. The income tax provision for the year ended December 31, 2023 reflects the current year operational loss and the impact of lower stock-based compensation deductions for tax purposes compared to the stock-based compensation expense recorded in the consolidated statement of operations.

Segment Information

The following tables set forth the results of operations for the relevant segments for the years ended December 31, 2023 and 2022 (dollars in thousands):

Integrated Care total revenues increased by $94.9 million, or 7%, to $1,468.8 million for the year ended December 31, 2023. The increase in net revenues was primarily driven by higher chronic care program enrollment and adoption, as well as higher telemedicine product revenue, including higher revenues from our Primary360 offering.

Integrated Care Adjusted EBITDA increased by $56.7 million, or 42%, to $191.9 million for the year ended December 31, 2023, primarily reflecting higher gross profit, partially offset by higher general and administrative expenses and technology and development costs.

BetterHelp total revenues increased by $114.0 million, or 11%, to $1,133.6 million for the year ended December 31, 2023, driven by a 9% increase in average monthly paying users.

BetterHelp Adjusted EBITDA increased by $22.1 million, or 19%, to $136.2 million for the year ended December 31, 2023, primarily reflecting higher gross profit, offset by higher operating expenses, most significantly higher advertising and marketing expenses.

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Liquidity and Capital Resources

The following table presents a summary of our cash flow activity for the years ended December 31, 2023 and 2022 (in thousands):

Our principal sources of liquidity are cash and cash equivalents, totaling $1,123.7 million as of December 31, 2023. During 2023, we experienced positive operating cash flow and we anticipate increasing positive operating cash flow results for 2024.

We believe that our existing cash and cash equivalents will be sufficient to meet our working capital, capital expenditure, and contractual obligation 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, the continuing market acceptance of telehealth, and our debt service obligations. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, technologies, and intellectual property rights. We may be required to seek additional equity or debt financing to fund working capital, capital expenditures and acquisitions, and to settle debt obligations. 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, which would adversely affect our business, financial condition and results of operations.

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

See Note 10. “Convertible Senior Notes” to the consolidated financial statements for additional information on our convertible senior notes.

We were in compliance with all debt covenants at December 31, 2023.

We routinely enter into contractual obligations with third parties to provide professional services, licensing, and other products and services in support of our ongoing business. The current estimated cost of these contracts is not expected to be significant to our liquidity and capital resources based on contracts in place as of December 31, 2023.

Cash from Operating Activities

Cash flows provided by operating activities consist of net loss adjusted for certain non-cash items and the cash effect of changes in assets and liabilities. Cash provided by operating activities was $350.0 million and $189.3 million for the years ended December 31, 2023 and 2022, respectively, an increase of $160.7 million. The increase was driven by higher performance of the business, higher interest income, and higher working capital and other changes, partially offset by higher acquisition, integration, and transformation costs and restructuring costs. Cash provided by operating activities for the years ended December 31, 2023 and 2022 included approximately $15.6 million and $19.1 million, respectively, related to investments in and implementation of cloud computing applications, which are deferred and amortized over multiple years based on the expected contract life.

The primary uses of cash from operating activities are for the payment of cash compensation, provider fees, engagement marketing, direct-to-consumer digital and media advertising, inventory, insurance, technology costs, interest expense and acquisition, integration, and transformation costs. Historically, cash compensation is at its highest level in the first quarter when discretionary employee compensation related to the previous fiscal year is paid.

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Cash from Investing Activities

Cash used in investing activities was $156.3 million for the year ended December 31, 2023 and primarily consisted of capitalized software development costs of $144.9 million and capital expenditures of $11.5 million. Cash used in investing activities for the year ended December 31, 2022 of $167.7 million consisted primarily of capitalized software development costs of $156.3 million and capital expenditures of $16.5 million. The decrease of $11.4 million related to lower capitalized software development costs.

Cash from Financing Activities

Cash provided by financing activities for the year ended December 31, 2023 was $10.9 million and primarily consisted of $1.5 million of proceeds from the exercise of employee stock options and $9.7 million of proceeds from participants in our employee stock purchase plan. Cash provided by financing activities for the year ended December 31, 2022 was $6.5 million and primarily consisted of $5.9 million of proceeds from the exercise of employee stock options and $6.5 million of proceeds from participants in our employee stock purchase plan.

The following is a reconciliation of net cash provided by operating activities to free cash flow (in thousands, unaudited):

Free cash flow was $193.7 million for the year ended December 31, 2023, as compared to $16.5 million for the year ended December 31, 2022. The year-over-year increase was substantially driven by growth in operating cash flow, and to a lesser degree, a decline in capitalized expenditures and capitalized software.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Overview

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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,” the “Company,” or “we.” The Company’s principal executive office is located in Purchase, New York. Teladoc Health is the global leader in whole person virtual care focused on forging a new healthcare experience with better convenience, outcomes, and value around the world.

​

We were founded on a simple, yet revolutionary idea: that everyone should have access to the best healthcare, anywhere in the world on their terms. Today, we have a vision of making virtual care the first step on any healthcare journey, and we are delivering on this mission by providing whole person virtual care that includes primary care, mental health, chronic condition management, and more.

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In the fourth quarter of 2022, we adopted a new organizational and reporting structure based on two operating segments, Integrated Care and BetterHelp. As a result of these changes, the segment information for the prior periods has been provided herein summarizing the significant factors affecting our results of operations and financial condition for the year ended December 31, 2022. This presentation reflects how management now allocates resources and assesses performance. See Note 20. “Segment Information,” to the consolidated financial statements for further information about our reportable segments.

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We believe that favorable existing secular trends in the healthcare industry were accelerated by the impacts of the COVID-19 pandemic, driving greater consumer awareness and use of virtual care and increased adoption by employers, health plans, hospitals and health systems, healthcare providers, and individuals. 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, affordable, and high-quality care; empower individuals to manage and improve their health; and enable providers to offer their best care for their patients.

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Revenue

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We have a demonstrated track record of driving growth both organically and through acquisitions. For the year ended December 31, 2022, we increased revenue 18% to $2,406.8 million, reflecting a 21% increase in revenue derived from access fees, primarily from BetterHelp. In 2021, revenue increased 86% to $2,032.7 million, which included an incremental $500.0 million from acquired businesses.

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For the year ended December 31, 2022, 87% and 13% of our revenue was derived from access fees and other revenues, respectively. For the year ended December 31, 2021, 86% and 14% of our revenue was derived from access fees and other revenues, respectively.

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Acquisition History

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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, 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, a leading provider of enterprise telehealth solutions for hospitals and health systems.

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Key Factors Affecting Our Performance

​

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

​

As it relates to the Integrated Care segment:

​

Number of U.S. Integrated Care Members. U.S. Integrated Care members represent the number of unique individuals who have paid access and visit fee only access to our suite of integrated care services in the U.S. at the end of the applicable period. Our revenue growth rate and long-term profitability are affected by our ability to increase cross selling capability among our existing members over time because we derive a substantial portion of our revenue from access and other fees via Client contracts that provide members access to our professional provider network in exchange for a contractual based periodic fee. Therefore, we believe that our ability to add new members and retain existing members, and to increase utilization and penetration further into existing and new health plan Clients is a key indicator of our increasing market adoption, the growth of our business, and our future revenue potential. We further believe 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. U.S. Integrated Care members increased by 5.8 million to 83.3 million at December 31, 2022, compared to the same period in 2021.

​

Chronic Care Program Enrollment. Chronic care program enrollment represents the total of enrollees across our suite of chronic care programs at the end of a given period. Our chronic care program enrollments are one of the key components of our whole person virtual care platform that we believe positions us to drive greater engagement with our platforms and increased revenue. Chronic care program enrollment increased by 16% to 1.02 million at December 31, 2022, compared to 0.88 million at December 31, 2021.

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Average Revenue Per U.S. Integrated Care Member. Average revenue per U.S. Integrated Care member measures the average amount of global revenue that we generate from a U.S. Integrated Care member for a particular period. It is calculated by dividing the total revenue generated from the Integrated Care segment by the average number of U.S. Integrated Care members during the applicable period. Approximately 20% of total Integrated Care revenues relates to international and hospital and health systems for which membership is not considered as a management metric. We believe that our ability to increase the revenue generated from each member over time is also a key indicator of our increasing market adoption, the growth of our business, and future revenue potential. Average revenue per U.S. Integrated Care member decreased to $1.42 in the year ended December 31, 2022, from $1.46 in the same period in 2021, primarily due to the impact of new members onboarded over the course of year.

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As it relates to the BetterHelp segment:

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BetterHelp Paying Users. BetterHelp paying users represent the global number of paid users who used our BetterHelp mental health services during the applicable period. We believe that our ability to add new paying users and retain existing users is a key indicator of the increasing market adoption of BetterHelp, the growth of that business, and future revenue potential. Our ability to efficiently reach new potential paying users through various advertising channels helped us to increase BetterHelp paying users by 37% to 0.42 million as of December 31, 2022, compared to 0.31 million as of December 31, 2021.

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As it relates to the Company:

​

Seasonality. Our business has historically been subject to seasonality. In our Integrated Care segment, as a result of many Clients’ introduction of new services at the start of each year a concentration of our new Client contracts has an effective date of January 1. Therefore, while membership increases, utilization and enrollment rates are dampened until service delivery ramps up over the course of the year. As a result of seasonal cold and flu trends, we historically have experienced our highest level of visit and other fee revenue during the first and fourth quarters of each year.

​

Due to the higher cost of customer acquisition during the end-of-year holiday season, our BetterHelp segment has historically reduced marketing activity during the fourth quarter. As a result of this dynamic we have typically experienced fewer new member additions and the strongest operating income performance in the fourth quarter.

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Conversely, as marketing activity typically resumes at the start of the year, we typically experience the weakest operating income performance during the first quarter as new customer acquisition and revenue growth lags marketing spend.

​

During the COVID-19 pandemic in 2021 and 2020, we did not experience the typical seasonality associated with cold and flu outbreaks, nor did we experience the typical seasonality associated with the BetterHelp business. See “Risk Factors—Risks Related to Our Business and Industry—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 Estimates and Policies

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Revenue

​

We follow the revenue accounting requirements of Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” Accounting Standards Codification (“ASC”) 606 establishes a principle for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The core principle of ASC 606 is to recognize revenue to depict the transfer of promised goods or services to Clients in an amount that reflects the consideration the entity expects to be entitled in exchange for those goods or services. This principle is achieved through applying the following five-step approach:

​

•Identification of the contract, or contracts, with a Client.

​

•Identification of the performance obligations in the contract.

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•Determination of the transaction price.

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•Allocation of the transaction price to the performance obligations in the contract.

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•Recognition of revenue when, or as, we satisfy a performance obligation.

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As it relates to the Integrated Care segment, we primarily 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 as well as certain contracts that also include additional revenue on a per-virtual healthcare visit basis for general medical or other specialty visits, or expert medical service on a per case basis. We also have certain contracts that generate revenue based solely on a per healthcare visit basis for general medical and other specialty visits. For our BetterHelp product, members purchase access to our professional provider network for an access fee.

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Revenues are also generated from contracts with Clients for our chronic care management solutions. Substantially all of this revenue is derived from monthly access fees that are recognized as services are rendered and earned under subscription agreements with Clients that are based on a per-participant-per-month model, using the number of active enrolled members each month for the minimum enrollment period. These solutions integrate devices, supplies, access to our web-based platform, and clinical and data services to provide an overall health management solution. The promises to transfer these goods and services are not separately identifiable and are considered a single continuous service comprised of a series of distinct services that are substantially the same and have the same pattern of transfer (i.e., distinct days of service). These services are consumed as they are received, and we recognize revenue each month using the variable consideration allocation exception since the nature of the obligations and the variability of the payment being based on the number of active members are aligned.

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Revenue is also generated from contracts with Clients in hospital and health systems for the sale and rental of equipment consisting of virtual healthcare devices which allow physicians to access our hosted virtual healthcare platform. These contracts also include multiple performance obligations, and we determine the standalone selling prices

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based on overall pricing objectives. In some arrangements, our devices are rented to certain qualified Clients that qualify as either sales-type lease or operating lease arrangements and are subject to lease accounting guidance.

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We record access fees from Clients accessing our professional provider network or hosted virtual healthcare platform or chronic care management platforms, visit fee revenue for general medical, expert medical service and other specialty visits as well as other revenue primarily associated with virtual healthcare device equipment included with our hosted virtual healthcare platform. Visit and other revenues are reported as “Other” revenue in our consolidated financial statements.

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Our Client agreements generally have a term of one to three years. The majority of Clients have a term of one year and renew their contracts following their first year of services. Revenues are recognized when we satisfy our performance obligation to stand ready to provide virtual healthcare services which occurs when our Clients and members have access to and obtain control of the virtual healthcare service or platform.

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For contracts where revenue is generated on a per healthcare visit basis, revenues are recognized when the visits are completed as we have delivered on our stand ready obligation to provide access. 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.

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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. Performance guarantees are estimated at each reporting period based on our historical performance of the underlying criteria or the customer’s specific performance as of that reporting date. Any estimated adjustments to the contract price for achieving or not achieving the performance guarantee are recognized as an adjustment to revenue in the period. For the years ended December 31, 2022, 2021, and 2020, revenue recognized from performance obligations related to prior periods for the changes in transaction price or Client performance guarantees was $4.4 million, $5.6 million, and $1.9 million, respectively.

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As it relates to the BetterHelp segment, users purchase mental health or other wellness services for an access fee.

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Goodwill

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As of December 31, 2022, our balance of goodwill was $1.1 billion, which all related to the BetterHelp segment. Goodwill represents the excess of the total purchase consideration over the fair value of the identifiable assets acquired and liabilities assumed in a business combination. Goodwill is not amortized but is tested for impairment at the reporting unit level annually on October 1 or more frequently if events or changes in circumstances indicate that it is more likely than not to be impaired. These events include: (i) severe adverse industry or economic trends; (ii) significant company-specific actions, including exiting an activity in conjunction with restructuring of operations; (iii) current, historical or projected deterioration of our financial performance; or (iv) a sustained decrease in our market capitalization, as indicated by our publicly quoted share price, below our net book value.

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When testing goodwill for impairment, we have the option of first performing a qualitative assessment to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. If we elect to bypass the qualitative assessment, or if a qualitative assessment indicates it is more likely than not that carrying value exceeds its fair value, we perform a quantitative goodwill impairment test. Under the quantitative goodwill impairment test, if our reporting unit’s carrying amount exceeds its fair value, we will record an impairment charge based on that difference.

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To determine reporting unit fair value as part of the quantitative test, we use a weighting of fair values derived from the income approach and the market approach. Under the income approach, we project our future cash flows and discount these cash flows to reflect their relative risk. The cash flows used are consistent with those we use in our internal planning, which reflects actual business trends experienced and our long-term business strategy. As such, key estimates and factors used in this method include, but are not limited to, revenue, margin, and operating expense growth

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rates, capital expenditure estimates as well as a discount rate, and a terminal growth rate. Under the market approach, we use the guideline company method to develop valuation multiples and compare our reporting unit to similar publicly traded companies.

​

In order to further validate the reasonableness of fair value as determined by the income and market approaches described above, a reconciliation to market capitalization is then performed by estimating a reasonable control premium and other market factors. Future changes in the judgments, assumptions and estimates that are used in the impairment testing for goodwill could result in significantly different estimates of fair value.

​

We experienced triggering events in 2022 due to sustained decreases in our share price, prompting impairment assessments of goodwill and long-lived assets including definite-lived intangibles as of March 31, 2022 and again as of June 30, 2022.

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Both impairment assessments in 2022 reflected a 75%/25% allocation between the income and market approaches. We believe the 75% weighting to the income approach continues to be appropriate as it more directly reflects our future growth and profitability expectations. The table below indicates changes in the most significant inputs to our impairment analysis on each testing date related to those triggering events as well as our annual impairment test.

​

​

In March 2022, we updated the projected long-range cash flows used in the impairment assessment, including revenues, margin, and capital expenditures to reflect current conditions. Other changes in valuation assumptions included increases in interest rates and market volatility, resulting in a higher discount rate, and selection of lower revenue multiples based upon an assessment of a relevant peer group. As a result of this review, we did not identify an impairment to our definite-lived intangible assets or other long-lived assets, but we recorded a $6.6 billion non-deductible goodwill impairment charge (or $40.88 per basic and diluted share) in the quarter ended March 31, 2022. The non-cash charges had no impact on the provision for income taxes.

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As of June 30, 2022, we updated valuation assumptions. The discount rate was increased for a company risk premium to reflect the current perception of risks of achieving projected cash flows and, to a lesser extent, to reflect further increases in interest rates and market volatility. Additionally, revenue market multiples were lowered based upon an updated analysis of a consistent peer group. The assessment did not result in an impairment of definite-lived intangible assets or other long-lived assets but resulted in an additional $3.0 billion non-deductible goodwill impairment charge (or $18.77 per basic and diluted share). The non-cash charges had no impact on the provision for income taxes.

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On October 1, 2022, we reorganized our reporting structure to include two reportable segments, Teladoc Health Integrated Care and BetterHelp, which also represent reporting units for purposes of assessing goodwill. We performed our annual impairment test consistent with the rules set forth under ASC 350, “Intangibles—Goodwill and Other,” performing an initial test on our then-existing reporting unit. The impairment test utilized our latest estimates of projected cash flows, including revenues, margin, and capital expenditures, as well as current market assumptions for the discount rate and revenue multiples, to reflect current market conditions and risk assessments. Based on the result of the impairment test, we recognized an additional $2.6 billion non-deductible goodwill impairment charge, driven significantly by a decline in projected cash flows. Following this impairment, we reassigned the remaining $2.2 billion to our new reporting units using a relative fair value allocation approach. We performed tests of the asset groups identified for the purposes of testing the recoverability of each reporting unit’s definite-lived intangibles and other long-lived assets, which was passed by a significant margin. Lastly, a post allocation goodwill impairment test on each of the

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reporting units was performed, the result of which was the recognition of an additional $1.1 billion of impairment on the goodwill assigned to our Teladoc Health Integrated Care reporting unit. The $3.8 billion (or $23.37 per basic and diluted share) non-cash charges had no impact on the provision for income taxes.

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For the twelve months ended December 31, 2022, a $13.4 billion non-deductible goodwill impairment charge (or $83.01 per basic and diluted share) was recognized. There were no impairment charges recorded for goodwill or definite-lived intangible assets for the years ended December 31, 2021 or 2020.

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Other Intangible Assets

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Other intangible assets include customer relationships, non-compete agreements, acquired technology, and trademarks resulting from business acquisitions, as well as capitalized software development costs. As of December 31, 2022, the aggregate balance of these assets was $1,836.8 million. We amortize these definite-lived intangible assets over their estimated useful lives as disclosed in Note 9. “Intangible Assets, Net and Certain Cloud Computing Costs” to the consolidated financial statements. We also review the useful lives on a quarterly basis to determine if the period of economic benefit has changed. Potential changes in useful lives, whether due to strategic decisions involving our brands, competitive forces, or other factors could result in additional amortization expense taking effect prospectively in the period of the change and could have a material impact on our consolidated financial statements.

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Customer relationships are amortized over a period of two to 20 years in relation to expected future cash flows. The useful lives of the customer relationships are subject to risks and uncertainties including future attrition rates. These considerations include, but are not limited to, the emergence of new competitor offerings, relative competitor pricing and scale, our ability to successfully integrate and manage the acquired customers, our level of success in delivering future innovation, and overall changes in economic and regulatory conditions. Significant changes in any one or a combination of considerations could lead us to update our weighted average attrition rate, which, in turn would impact the assigned useful life and the level of amortization expense recorded for our customer relationship intangibles. For example, a sustained increase in the customer attrition rate related to customers acquired in the Livongo transaction could prompt us to reduce our estimate of the remaining useful life of the customer relationships. Should this occur, a one-year reduction to the estimated life would result in an annual increase in amortization expense of approximately $5 million. Technology is amortized over four to seven years using the straight-line method. Capitalized software development costs are amortized over three to five years using the straight-line method.

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Through December 31, 2021, trademarks were amortized over three to 15 years using the straight-line method. Effective January 1, 2022, the useful lives for certain trademarks related to our strategy to integrate and move certain consumer brands under the Teladoc Health brand resulted in decreasing the weighted average useful life of all trademarks at the date of the change from 9.5 years to 7.5 years. This change increased annual amortization by approximately $23.2 million for the year ended December 31, 2022.

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Definite-lived intangible assets are re-evaluated whenever events or changes in circumstances indicate that their estimated useful lives may require revision and/or the carrying value of the related asset group may not be recoverable by its projected undiscounted cash flows. If the carrying value of the asset group is determined to be unrecoverable, an impairment charge would be recognized in an amount equal to the amount by which the carrying value of the asset group exceeds its fair value. As a result of the introduction of segments in the fourth quarter of 2022, a recoverability test for the definite-lived intangible assets was performed and no impairment was identified.

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Provision for Income Taxes

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Our provision for income taxes, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management's best assessment of estimated current and future taxes to be paid. The objectives for accounting for income taxes, as prescribed by the relevant accounting guidance, are to recognize the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities for future tax consequences of events that have been recognized in the financial statements. Deferred income taxes reflect the tax effect of temporary differences between asset and liability amounts that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. These deferred taxes are measured by applying currently enacted tax laws. Deferred tax assets and

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liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The assumptions about future tax consequences require significant judgment and variations in the actual outcome of these consequences could materially impact our results of operations. We recognize tax liabilities based on estimates of whether additional taxes and interest will be due. We adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense.

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Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Determination of valuation allowances recorded against deferred tax assets requires significant judgment and use of assumptions, including past operating results, estimates of future taxable income and the feasibility of tax planning strategies. To the extent that new information becomes available which causes us to change our judgment regarding the adequacy of existing valuation allowances, such changes to tax liabilities will impact income tax expense in the period in which such determination is made.

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Components of Results of Operations

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

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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 (including salaries and benefits, incentive compensation, and stock-based compensation), 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 includes costs of technology enabling multiple modes of real-time communication, including via web browser, mobile application, voice / telephony, and text. These expenses increase or decrease as the level of revenue changes. 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 access 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.

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Advertising and Marketing Expenses

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Advertising and marketing expenses consist primarily of costs of digital and media advertisements, personnel and related expenses (including salaries and benefits, incentive compensation, and stock-based compensation) 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.

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We expect our advertising and marketing expenses to increase 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

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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.

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Sales Expenses

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Sales expenses consist primarily of employee-related expenses, including salaries, benefits, commissions, and incentive-based awards, 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.

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Technology and Development Expenses

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Technology and development expenses include the costs of operating our on-demand technology infrastructure that are not directly related to changes in revenue or volume of visits, including certain licensed applications, information technology infrastructure, security, and compliance. The technology and development line item also contains amounts charged to expense for research and development, which include costs of new product development, costs to add new features or improve reliability or scalability of existing applications, and other software development and engineering costs to the extent that they are not capitalized. The research and development expenses may enable future revenue growth but are not directly related to current revenues.

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Technology and development expenses include personnel and related expenses (including salaries and benefits, incentive compensation, and stock-based compensation) for software engineering, information technology infrastructure, security and compliance, product development, and support for our efforts to add new features and ensure the reliability or scalability of our existing solutions. Technology and development expenses also include outsourced software engineering services, the costs of operating our on-demand technology infrastructure (whereas costs directly associated with revenue are presented separately in cost of revenues), and certain licensed applications. Our technology and development expenses exclude capitalized software development costs and depreciation and amortization.

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We expect our technology and development expenses to increase 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, including the ability to capitalize software development costs.

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General and Administrative Expenses

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General and administrative expenses include personnel and related expenses (including salaries and benefits, incentive compensation, and stock-based compensation) of, and professional fees incurred by our finance, legal and compliance, operations, human resources, clinical, corporate strategy, business development, strategies, quality and executive departments. They also include bank charges, most of the facilities costs including rent, utilities, and facilities maintenance, except for amounts allocated to cost of revenues, as well as therapists recruiting costs, related to BetterHelp, indirect taxes and certain licensed corporate applications. Our general and administrative expenses exclude any allocation of depreciation and amortization.

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We expect our general and administrative expenses to increase as we continue to grow our business. 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.

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Acquisition, Integration, and Transformation Costs

Acquisition, integration, and transformation 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. It also includes costs related to certain business transformation initiatives focused on integrating and optimizing various operations and systems, including upgrading our CRM and ERP systems, incurred in connection with our acquisition and integration activities.

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Restructuring Costs

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Restructuring costs consist primarily of certain lease impairment costs, certain losses related to early lease terminations, and severance.

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Depreciation and Amortization

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

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Loss on Extinguishment of Debt

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Loss on extinguishment of debt consists of costs associated with debt refinancing including the write-off of origination and termination financing fees and the redemption/conversion of convertible senior notes.

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Other Expense (Income), Net

Other expense (income), net includes the impact of foreign currency remeasurement, realized and unrealized gains on investment securities, and all other non-operating items not included in other financial statement lines.

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Interest Expense, Net

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Interest expense, net consists of interest costs associated with convertible senior notes and advances from financing companies, net of interest earned on cash and cash equivalents and short-term investments.

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Provision for Income Taxes

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Provision for income taxes reflects management’s best assessment of estimated current and future taxes to be paid. The objectives for accounting for income taxes, as prescribed by the relevant accounting guidance, are to recognize the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities for future tax consequences of events that have been recognized in the financial statements. See above for Critical Estimates and Policies.

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EBITDA, Adjusted EBITDA, and Free Cash Flow

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To supplement our financial information presented in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), we use earnings before interest, provision for income taxes, depreciation, and amortization (“EBITDA”), Adjusted EBITDA, and free cash flow 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 and financial and business trends 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 a key measure of our performance.

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EBITDA consists of net loss before interest expense, net; other expense (income), net, including foreign exchange gain or loss; provision for income taxes; depreciation and amortization; goodwill impairment; and loss on extinguishment of debt. Adjusted EBITDA consists of net loss before interest expense, net; other expense (income), net, including foreign exchange gain or loss; provision for income taxes; depreciation and amortization; goodwill impairment; loss on extinguishment of debt; stock-based compensation; restructuring costs; and acquisition, integration, and transformation costs.

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Free cash flow is net cash (used in) provided by operating activities less capital expenditures and capitalized software. Free cash flow reflects an additional way of viewing liquidity that, we believe, when viewed with U.S. GAAP results, provides management, investors and other users of our financial information with a more complete understanding of factors and trends affecting our cash flows.

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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, Adjusted EBITDA, and free cash flow may vary from that of others in our industry. Neither EBITDA, Adjusted EBITDA nor free cash flow should be considered as an alternative to net loss before provision for income taxes, net loss, net loss per share, net cash provided by operating activities or any other performance measures derived in accordance with U.S. GAAP.

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EBITDA, Adjusted EBITDA, and free cash flow 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.

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We compensate for these limitations by using EBITDA, Adjusted EBITDA, and free cash flow 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, net cash provided by operating activities, and other performance measures.

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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, Adjusted EBITDA, and free cash flow should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.

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Consolidated Results of Operations

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The following table sets forth our consolidated statement of operations data for the years ended December 31, 2022 and 2021 and the dollar and percentage change between the respective periods (dollars in thousands).

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NM – not meaningful

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The following table reconciles net loss, the most directly comparable U.S. GAAP measure, to EBITDA and Adjusted EBITDA for the years ended December 31, 2022 and 2021 (in thousands):

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Revenue. Total revenue was $2,406.8 million for the year ended December 31, 2022, compared to $2,032.7 million for the year ended December 31, 2021, an increase of $374.1 million, or 18%. Total access fees increased $363.6 million, or 21%. By geography, total revenue for the U.S. was $2,101.0 million and for International was $305.8 million for the year ended December 31, 2022, reflecting increases of 18% and 18%, respectively, compared to the year ended December 31, 2021.

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Other revenue, which predominately includes visit fees, and to a lesser extent, revenues from the sales of our telehealth solutions for hospitals and health systems. Other revenue totaled $303.0 million during the year ended December 31, 2022, compared to $292.5 million during the year ended December 31, 2021, an increase of $10.5 million, or 4%, driven by an increase in visits that was largely offset by lower revenues from our telehealth solutions for hospitals and health systems due to the roll-off of a legacy development contract.

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Cost of Revenue (exclusive of depreciation and amortization, which is shown separately below). Cost of revenue was $744.0 million for the year ended December 31, 2022, compared to $650.3 million for the year ended December 31, 2021, an increase of $93.7 million, or 14%, reflecting increased provider fees and physician network operation costs in line with revenue growth, partially offset by various optimization efforts.

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Advertising and Marketing Expenses. Advertising and marketing expenses were $623.5 million for the year ended December 31, 2022, compared to $416.7 million for the year ended December 31, 2021, an increase of $206.8 million, or 50%. This increase was substantially driven by higher digital and media advertising in support of BetterHelp, as well as higher engagement member marketing in the Integrated Care segment.

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Sales Expenses. Sales expenses were $227.2 million for the year ended December 31, 2022, compared to $250.6 million for the year ended December 31, 2021, a decrease of $23.4 million, or 9%. This decrease substantially reflects the impact from a reduction in stock-based compensation driven primarily by the roll-off of stock-based awards expense related to the Livongo merger, partially offset by higher commission due to higher revenues.

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Technology and Development Expenses. Technology and development expenses were $333.6 million for the year ended December 31, 2022, compared to $311.9 million for the year ended December 31, 2021, an increase of $21.7 million, or 7%. The increase was driven by the hiring of additional personnel as well as higher professional fees,

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staff augmentation costs, software license and hosting costs, and ongoing projects to operate and to continuously improve and optimize our technology portfolio, partially offset by the roll-off of stock-based awards expense related to the Livongo merger.

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General and Administrative Expenses. General and administrative expenses were $449.9 million for the year ended December 31, 2022, compared to $438.0 million for the year ended December 31, 2021, an increase of $11.8 million, or 3%. The increase was primarily driven by the overall growth of the business including personnel costs, bank charges, therapist recruiting, certain corporate software license costs, and other professional fees, partially offset by a year-over-year reduction in stock-based compensation driven primarily by the roll-off of stock-based awards expense related to the Livongo merger as well as lower indirect taxes and bad debt expenses.

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Acquisition, Integration, and Transformation Costs. Acquisition, integration, and transformation costs were $15.6 million for the year ended December 31, 2022, primarily consisting of costs to continue to integrate and upgrade our CRM and ERP ecosystem, compared to $26.6 million for the year ended December 31, 2021, a decrease of $11.0 million. The 2021 costs included residual acquisition-related costs associated with the Livongo merger as well as costs associated with integrating and optimizing various operations and systems, including enhancing our CRM and ERP systems.

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Restructuring Costs. Restructuring costs were $7.4 million for the year ended December 31, 2022 primarily consisting of losses related to early lease terminations and severance. See Note 14. ‘Restructuring” to the financial statements for additional information related to expected future costs to be incurred in 2023.

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Depreciation and Amortization. Depreciation and amortization was $256.0 million for the year ended December 31, 2022, compared to $204.2 million for the year ended December 31, 2021, an increase of $51.8 million, or 25%. The higher expense was primarily due to higher amortization associated with higher capitalized software development costs, and to a lesser extent, additional amortization expense related to the acceleration of the amortization of certain trademarks. As it relates to the acceleration of the useful lives for certain trademarks, this change made effective January, 1, 2022, related to our strategy to integrate and move certain consumer brands under the Teladoc Health brand. This acceleration of amortization resulted in decreasing the weighted average useful life of all trademarks at the date of the change from 9.5 years to 7.5 years. This change increased annual amortization by approximately $23.2 million in 2022.

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Goodwill Impairment. We recorded non-cash goodwill impairment charges of $13,402.8 million for the year ended December 31, 2022, following goodwill impairment testings performed as a result of sustained decreases in our publicly quoted share price and our annual testing requirement. The non-cash charges had no impact on the provision for income taxes. Refer to Critical Accounting Estimates and Policies: Goodwill Impairment Charge and Note 7. “Goodwill,” to our consolidated financial statements.

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Other Expense (Income), Net. Other expense (income), net was $0.9 million for the year ended December 31, 2022, compared to an income of ($5.1) million for the year ended December 31, 2021. The change consisted primarily of a $5.9 million gain on the sale of a non-marketable equity security in 2021 and foreign exchange remeasurements.

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Interest Expense, Net. Interest expense, net consists of interest costs and amortization of debt discount associated with our convertible senior notes, offset by interest income from cash and cash equivalents and short-term investments. Interest expense, net was $9.3 million and $80.4 million for the years ended December 31, 2022 and 2021, respectively. The decrease in interest expense, net substantially reflects the adoption of ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,” which resulted in the elimination of non-cash interest expense associated with the accretion of the recorded debt value to stated value and, to a lesser extent, an increase in interest income of $12.7 million from cash and cash equivalents. Refer to Note 11. “Convertible Senior Notes,” to the consolidated financial statements. The associated non-cash expense was $57.4 million, or $0.37 per share, for the year ended December 31, 2021.

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Provision for Income Taxes. We recorded an income tax benefit of $3.8 million for the year ended December 31, 2022, compared to an income tax expense of $44.1 million for the year ended December 31, 2021. The income tax

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provision for the year ended December 31, 2022 reflects the benefit of the current period operational losses, partially offset by lower tax deductions for stock-based awards that vested in the year due to the declining share price. The goodwill impairment of $13,402.8 million resulted in a non-cash charge, which is not deductible for tax purposes. For the year ended December 31, 2021, we recognized a non-cash income tax expense of $44.1 million substantially all related to additional valuation allowance on excess stock compensation benefits associated with the Livongo merger.

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Segment Information

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The following tables set forth the results of operations for the relevant segments for the years ended December 31, 2022 and 2021 (dollars in thousands):

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Integrated Care total revenues increased by $73.0 million, or 6%, to $1,373.9 million for the year ended December 31, 2022. The increase in net revenues was primarily driven by higher chronic care enrollment and adoption, as well as higher telemedicine product revenue.

Integrated Care Adjusted EBITDA decreased by $8.9 million, or 6%, to $135.2 million for the year ended December 31, 2022, primarily reflecting higher operating expenses, namely technology and development expenses and, to a lesser extent, higher advertising and engagement marketing costs.

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BetterHelp total revenues increased by $298.4 million, or 41%, to $1,019.6 million for the year ended December 31, 2022, driven by a 37% increase in average monthly paying users.

BetterHelp Adjusted EBITDA decreased by $7.6 million, or 6%, to $114.1 million for the year ended December 31, 2022, primarily reflecting higher operating expenses, most significantly higher advertising and marketing expenses.

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Consolidated Results of Operations

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The following table sets forth our consolidated statement of operations data for the years ended December 31, 2021 and 2020 and the dollar and percentage change between the respective periods (dollars in thousands):

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We completed our acquisitions of Livongo on October 30, 2020, and InTouch on July 1, 2020. 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.

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NM – not meaningful

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The following table reconciles net loss, the most directly comparable U.S. GAAP measure, to EBITDA and Adjusted EBITDA for the years ended December 31, 2021 and 2020 (in thousands):

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Revenue. Total revenue was $2,032.7 million for the year ended December 31, 2021, compared to $1,094.0 million for the year ended December 31, 2020, an increase of $938.7 million, or 86%. Excluding the impact from acquisitions, revenue increased 40%, driven primarily by BetterHelp. Total access fees increased $892.9 million, or 105%. Also contributing to the increase in total revenue was other revenue, which totaled $292.5 million during the year ended December 31, 2021, compared to $246.7 million for the year ended December 31, 2020, an increase of $45.8 million, or 19%, primarily reflecting visit revenues and a full year’s sales of our telehealth solutions for hospitals and health systems.

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Cost of Revenue (exclusive of depreciation and amortization, which is shown separately below). Cost of revenue was $650.3 million for the year ended December 31, 2021, compared to $390.8 million for the year ended December 31, 2020, an increase of $259.5 million, or 66%. Excluding the impact of acquisitions, cost of revenue increased by 42%, reflecting increased provider fees and physician network operation costs in line with revenue growth.

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Advertising and Marketing Expenses. Advertising and marketing expenses were $416.7 million for the year ended December 31, 2021, compared to $226.2 million for the year ended December 31, 2020, an increase of $190.5 million, or 84%. This increase was primarily driven by higher digital and media advertising in support of BetterHelp, as well as higher engagement member marketing in the Integrated Care segment. In addition, the increase included the impact of acquisitions, and an increase in personnel costs due to increased hiring.

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Sales Expenses. Sales expenses were $250.6 million for the year ended December 31, 2021, compared to $154.1 million for the year ended December 31, 2020, an increase of $96.5 million, or 63%. This increase substantially reflects the impact from acquisitions.

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Technology and Development Expenses. Technology and development expenses were $311.9 million for the year ended December 31, 2021, compared to $164.9 million for the year ended December 31, 2020, an increase of $147.0 million, or 89%. In addition to substantially reflecting the impact of acquisitions, the increase was driven by hiring of additional personnel, professional fees, and ongoing projects to continuously improve and optimize our technology portfolio.

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General and Administrative Expenses. General and administrative expenses were $438.0 million for the year ended December 31, 2021, compared to $506.7 million for the year ended December 31, 2020, a decrease of $68.7 million, or 14%. The decrease was primarily driven by a $211.2 million year-over-year reduction in stock-based

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compensation driven primarily by the acceleration of stock-based awards expense related to the Livongo merger. Partially offsetting the decrease was the full year impact of acquisitions, as well as increases reflecting the overall growth of the business including personnel costs, indirect taxes, bank charges, therapist recruiting, and legal and other professional costs.

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Acquisition, Integration, and Transformation Costs. Acquisition, integration, and transformation costs were $26.6 million for the year ended December 31, 2021, compared to $88.2 million for the year ended December 31, 2020, a decrease of $61.6 million. The higher level of costs incurred in 2020 was driven by non-recurring transaction costs and charges associated with the InTouch and Livongo acquisitions, including investment banking, financing, legal, accounting, and consultancy costs. In contrast, the 2021 costs included residual acquisition-related costs associated with the Livongo merger as well as costs associated with integrating and optimizing various operations and systems, including enhancing our CRM and ERP systems.

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Depreciation and Amortization. Depreciation and amortization was $204.2 million for the year ended December 31, 2021, compared to $69.5 million for the year ended December 31, 2020, an increase of $134.7 million, or 194%. The year-over-year increase was driven primarily by the impact of acquisitions, which resulted in an increase of $130.6 million in amortization of finite-lived intangibles and an increase of $4.2 million in depreciation of property and equipment.

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Loss on Extinguishment of Debt. Loss on extinguishment of debt was $43.7 million for the year ended December 31, 2021, compared to $9.1 million for the year ended December 31, 2020, an increase of $34.6 million driven primarily by exchanges, redemptions and conversions of convertible senior notes due in 2022 and 2025 as discussed in Note 11. “Convertible Senior Notes” to the Consolidated Financial Statements.

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Other (Income) Expense, Net. Other (income) expense, net was ($5.1) million for the year ended December 31, 2021, compared to $0.6 million for the year ended December 31, 2020. The change consisted primarily of a $5.9 million gain on the sale of a non-marketable equity security and foreign exchange remeasurements.

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Interest Expense, Net. Interest expense, net consists of interest costs and amortization of debt discount associated with our convertible senior notes, offset by interest income from cash and cash equivalents and short-term investments. Interest expense, net was $80.4 million and $60.0 million for the years ended December 31, 2021 and 2020, respectively. The increase in interest expense, net primarily is associated with the full year impact of the 2027 Notes issued in May 2020 and the Livongo Notes that we agreed to guarantee in October 2020 as part of the Livongo merger.

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Provision for Income Taxes. We recorded an income tax expense of $44.1 million for the year ended December 31, 2021, compared to a ($90.9) million benefit for the year ended December 31, 2020. The income tax expense in 2021 largely reflects an increase in the valuation allowances needed to reflect our ability to utilize future net operating losses, primarily associated with stock compensation benefits associated with the purchase of Livongo and partially offset by the impact of current period losses. The tax benefit in 2020 largely reflects the recognition of current period losses due to the partial release of the U.S. valuation allowance due to acquired intangibles from the purchases of InTouch and Livongo, as well as increased excess stock-based compensation deductions.

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Segment Information

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The following tables set forth the results of operations for the relevant segments for the years ended December 31, 2021 and 2020 (dollars in thousands):

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Integrated Care total revenues increased by $556.6 million, or 75%, to $1,300.9 million for the year ended December 31, 2021, primarily driven by the full year impact in 2021 of the acquisitions of Livongo and InTouch in 2020.

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Integrated Care Adjusted EBITDA increased by $78.2 million, or 119%, to $144.0 million for the year ended December 31, 2021, primarily driven by the full year impact in 2021 of the acquisitions of Livongo and InTouch in 2020.

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​

BetterHelp total revenues increased by $376.1 million, or 109%, to $721.2 million for the year ended December 31, 2021, driven by a 76% increase in average monthly paying users.

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BetterHelp Adjusted EBITDA increased by $56.2 million, or 86%, to $121.7 million for the year ended December 31, 2021 primarily driven by higher growth in revenues.

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Selected Quarterly Results of Operations

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The following table sets forth the quarterly consolidated statement of operations data for the years ended December 31, 2022 and 2021 (in thousands):

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(1)Reflects the reclass from technology and development to general and administrative of $2.1 million and $3.2 million of expenses for the quarters ended June 30, 2022 and September 30, 2022, respectively, to align with the current management presentation.

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Liquidity and Capital Resources

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The following table presents a summary of our cash flow activity for the years ended December 31, 2022 and 2021 (in thousands):

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Our principal sources of liquidity are cash and cash equivalents, totaling $918.2 million as of December 31, 2022. During 2022, we experienced positive operating cash flow and we continue to anticipate increasing positive operating cash flow results for 2023.

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We believe that our existing cash and cash equivalents will be sufficient to meet our working capital, capital expenditure, and contractual obligation 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, the continuing market acceptance of telehealth, and our debt service obligations. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, technologies, and intellectual property rights. We may be required to seek additional equity or debt financing to fund working capital, capital expenditures and acquisitions, and to settle debt obligations. 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, which would adversely affect our business, financial condition and results of operations.

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

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See Note 11. “Convertible Senior Notes” to the consolidated financial statements for additional information on our convertible senior notes.

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We were in compliance with all debt covenants at December 31, 2022 and 2021.

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We routinely enter into contractual obligations with third parties to provide professional services, licensing, and other products and services in support of our ongoing business. The current estimated cost of these contracts is not expected to be significant to our liquidity and capital resources based on contracts in place as of December 31, 2022.

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Cash Flows from Operating Activities

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Cash flows provided by operating activities consist of net loss adjusted for certain non-cash items and the cash effect of changes in assets and liabilities. Cash provided by operating activities was $189.3 million and $194.0 million for the years ended December 31, 2022 and 2021, respectively. Cash provided by operating activities for the years ended December 31, 2022 and 2021 included approximately $19.1 million and $2.6 million, respectively, related to investments in and implementation of cloud computing applications, which are deferred and amortized over multiple years based on expected contract life. The year-over-year decrease was driven by expenditures for cloud computing assets as well as higher operating expenses, namely higher advertising and engagement marketing costs and, to a lesser extent, higher technology and development expenses.

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Our primary uses of cash from operating activities are for the payment of cash compensation, provider fees, engagement marketing, D2C digital and media advertising, inventory, insurance, technology costs, interest costs, and

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acquisition, integration, and transformation costs. Historically, our cash compensation payments are at the highest level in the first quarter when we pay discretionary employee compensation related to the previous fiscal year.

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Cash Flows from Investing Activities

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Cash used in investing activities was $167.7 million for the year ended December 31, 2022 and primarily consisted of capitalized software development costs of $156.3 million and capital expenditures of $16.5 million. Cash used in investing activities for the year ended December 31, 2021 of $73.0 million consisted primarily of net cash paid for acquisitions of $78.7 million and capitalized software development of $55.4 million, partially offset by proceeds from the sale of marketable securities and the sale of an investment of $50.0 million and $10.9 million, respectively. The increase in capitalized software development costs of $100.9 million from 2021 relates to our ongoing investments to build out and optimize our products and platforms, including integrating consumer applications and new products and services including Primary360.

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Cash Flows from Financing Activities

Cash provided by financing activities for the year ended December 31, 2022 was $6.5 million and primarily consisted of $5.9 million of proceeds from the exercise of employee stock options and $6.5 million of proceeds from participants in our employee stock purchase plan, partially offset by payment against advances from financing companies. Cash provided by financing activities for the year ended December 31, 2021 was $40.9 million and primarily consisted of $25.8 million of proceeds from the exercise of employee stock options and $16.8 million of proceeds from participants in our employee stock purchase plan.

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The following is a reconciliation of net cash provided by operating activities to free cash flow (in thousands, unaudited):

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Free cash flow was $16.5 million for the year ended December 31, 2022, as compared to $130.1 million for the year ended December 31, 2021. The year-over-year decline was substantially driven by higher capitalized software development costs.

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Recently Issued Pronouncements

In June 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-03, “Fair Value Measurement (Topic 820)—Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions” to clarify that an equity security subject to a contractual sale restriction does not take that restriction into consideration when measuring its fair value and to require specific disclosures related to such an equity security. ASU 2022-03 is effective for annual reporting periods, including interim periods, beginning after December 15, 2023, with early adoption permitted. The provisions of ASU 2022-03 are to be applied prospectively with any adjustments made to earnings on the date of adoption. The adoption of ASU 2022-03 is not expected to have a material impact on our financial statements.

In September 2022, the FASB issued ASU 2022-04, “Liabilities – Supplier Finance Programs (Subtopic 405-50) – Disclosure of Supplier Finance Program Obligations,” to provide guidance on disclosure requirements for supplier finance programs and improve information transparency by requiring the disclosure of key terms of the program, amounts outstanding that remain unpaid, a description of where those amounts are presented in the balance sheet, and a rollforward of any outstanding obligations. ASU 2022-04 is effective for annual reporting periods, including interim periods therein, beginning after December 15, 2022, except for the amendment on roll forward information, which is

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effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. We are currently evaluating what the impact of adopting ASU 2022-04 may have on our financial statements.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Overview

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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,” the “Company,” or “we.” The Company’s principal executive office is located in Purchase, New York. Teladoc Health is the global leader in whole person virtual care focused on forging a new healthcare experience with better convenience, outcomes and value around the world.

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Teladoc Health was founded on a simple, yet revolutionary idea: that everyone should have access to the best healthcare, anywhere in the world on their terms. Today, we have a vision of making virtual care the first step on any healthcare journey, and we are delivering on this mission by providing whole person virtual care that includes primary care, mental health, chronic condition management, and more.

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COVID-19 Update

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We believe that favorable existing secular trends in the healthcare industry were accelerated by the impacts of the COVID-19 pandemic, driving greater consumer use of virtual care, and increased adoption by employers, health plans, hospitals and health systems, and healthcare 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, affordable, and high-quality care; empower individuals to manage and improve their health; and enable providers to offer their best care for their patients.

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We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business. COVID-19 has 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 any 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 any resulting economic impact may materially and adversely affect our business, results of operations, cash flows, and financial positions as well as our customers.

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We have also taken measures in response to the COVID-19 pandemic, and we may take 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.

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Revenue

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We have a demonstrated track record of driving growth both organically and through acquisitions. For the year ended December 31, 2021, we increased revenue 86% to $2,032.7 million, including an incremental $500.0 million from acquired business. Excluding the impact of the acquisitions, revenue increased 40% for the year ended December 31, 2021, 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 2020, revenue increased 98% to $1,094.0 million which included an incremental $128.3 million from our InTouch acquisition and Livongo merger.

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For the year ended December 31, 2021, 85%, 13%, and 2% of our revenue was derived from access fees, visit fees, and other, respectively. For the year ended December 31, 2020, 78%, 20%, and 2% of our revenue was derived from access fees, visit fees, and other, respectively.

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Acquisition History

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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.

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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 final consideration was $13,876.9 million consisting of $380.2 million of net cash, $555.4 million related to the conversion feature of the Livongo Notes guaranteed by the Company and 60.2 million shares of Teladoc Health’s common stock valued at approximately $12,941.3 million on October 30, 2020. Livongo is a leading provider to empower people with chronic conditions to live better and healthier lives.

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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.

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Key Factors Affecting Our Performance

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

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Number of Members and Revenue per Member. Our revenue growth rate and long-term profitability are affected by our ability to increase cross selling capability among our existing members because we derive a substantial portion of our revenue from access and other fees via Client contracts that provide members access to our professional provider network in exchange for a contractual based periodic fee or access fees derived from our D2C members. Therefore, we believe that our ability to add new members, retain existing members, and increase the revenue generated from each member is a key indicator of our increasing market adoption, the growth of our business, and future revenue potential, and that increasing our membership and revenue per member is an integral objective that will provide us with the ability to continually innovate our services and support initiatives that will enhance members’ experiences. U.S. paid membership increased by 1.8 million to 53.6 million at December 31, 2021, compared to the same period in 2020. Average U.S. revenue per member measures the average amount of access revenue that we generate from a U.S. paid member for a particular period. It is calculated by dividing the U.S. access revenue generated from our U.S. paid members, excluding certain non-member based access fees, by the total average number of U.S. paid members during the applicable period. Average U.S. revenue per member increased to $2.32 in 2021, from $1.12 in 2020. For the fourth quarter of 2021, Average U.S. revenue per member was $2.49 compared to $1.63 for the same period last year.

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Number of Visits and Utilization. We also recognize revenue in connection with the completion of a general medical visit, expert medical service, and other specialty visits for contracts where the service is not part of access fees. Visit fee revenue is driven primarily by the number of Clients, the number of members in a Client’s population, member

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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 38%, or 4.2 million, to approximately 15.4 million for the year ended December 31, 2021, compared to the same period in 2020. Utilization measures the ratio of visits to total U.S. paid members. It is calculated by dividing annual visits by annual U.S. paid members in the year. Visit fee only visits are excluded. Utilization increased by 560 basis points to approximately 20.1% for the year ended December 31, 2021, compared to 14.5% in the same period in 2020.

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Number of Platform-Enabled 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 healthcare. Our Clients completed 4.1 million platform-enabled sessions during the year ended December 31, 2021, compared to 2.1 million during the six month period ended December 31, 2020, reflecting the period following the acquisition of InTouch.

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Chronic Care Enrollment. Our chronic care programs are one of the key components of our whole person virtual care platform that we believe position us to drive greater engagement with our platforms and increased revenue. Chronic care enrollment measures the number of unique individuals enrolled in one or more of our chronic care programs. Chronic care enrollment increased by 22% to 0.7 million at December 31, 2021, compared to 0.6 million at December 31, 2020.

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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 has 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.

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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 2021 and 2020, we did not experience the typical seasonality associated with national cold and flu outbreaks. See “Risk Factors—Risks Related to Our Business and Industry —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 Estimates and Policies

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Revenue

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The Company follows the revenue accounting requirements of Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“Accounting Standards Codification (“ASC”) 606”). ASC 606 establishes a principle for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The core principle of ASC 606 is to recognize revenue to depict the transfer of promised goods or services to Clients in an amount that reflects the consideration the entity expects to be entitled in exchange for those goods or services. This principle is achieved through applying the following five-step approach:

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•Identification of the contract, or contracts, with a Client.

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•Identification of the performance obligations in the contract.

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•Determination of the transaction price.

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•Allocation of the transaction price to the performance obligations in the contract.

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•Recognition of revenue when, or as, the Company satisfies a performance obligation.

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The Company primarily 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 access fee as well as certain contracts that also include additional revenue on a per-virtual healthcare visit basis for general medical or other specialty visits, or expert medical service on a per case basis. The Company also has certain contracts that generate revenue based solely on a per healthcare visit basis for general medical and other specialty visits. For the Company’s D2C mental health product, members purchase access to the Company’s professional provider network for an access fee.

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Revenues are also generated from contracts with Clients for the Company’s chronic care management solutions. Substantially all of this revenue is derived from monthly access fees that are recognized as services are rendered and earned under subscription agreements with Clients that are based on a per participant per month model, using the number of active enrolled members each month for the minimum enrollment period. These solutions integrate devices, supplies, access to the Company’s web-based platform, and clinical and data services to provide an overall health management solution. The promises to transfer these goods and services are not separately identifiable and is considered a single continuous service comprised of a series of distinct services that are substantially the same and have the same pattern of transfer (i.e., distinct days of service). These services are consumed as they are received, and the Company recognizes revenue each month using the variable consideration allocation exception since the nature of the obligations and the variability of the payment being based on the number of active members are aligned.

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Revenue is also generated from contracts with Clients for the sale and rental of equipment consisting of virtual healthcare devices which allow physicians to access the Company’s hosted virtual healthcare platform. These contracts also include multiple performance obligations, and the Company determines the standalone selling prices based on overall pricing objectives. In some arrangements, the Company’s devices are rented to certain qualified Clients that qualify as either sales-type lease or operating lease arrangements and are subject to lease accounting guidance.

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The Company records access fees from Clients accessing its professional provider network or hosted virtual healthcare platform or chronic care management platforms, visit fee revenue for general medical, expert medical service and other specialty visits as well as other revenue primarily associated with virtual healthcare device equipment included with its hosted virtual healthcare platform.

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The Company’s Client agreements generally have a term of one to three years. The majority of Clients have a term of one year and renew their contracts following their first year of services. Revenues are recognized when the Company satisfies its performance obligation to stand ready to provide virtual healthcare services which occurs when the Company’s Clients and members have access to and obtain control of the virtual healthcare service or platform.

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For contracts where revenue is generated on a per healthcare visit basis, revenues are recognized when the visits are completed as the Company has delivered on its stand ready obligation to provide access. For other revenue, which primarily includes virtual healthcare devices, the Company’s performance obligation is satisfied when the equipment is provided to the Client and revenue is recognized at a point in time upon shipment.

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Certain of the Company’s contracts include Client performance guarantees and pricing adjustments that are based upon minimum member utilization and guarantees by the Company for specific service level performance, member satisfaction scores, cost savings guarantees, and health outcome guarantees. Performance guarantees are estimated at each reporting period based on the Company’s historical performance of the underlying criteria or the customer’s specific performance as of that reporting date. Any estimated adjustments to the contract price for achieving or not achieving the performance guarantee are recognized as an adjustment to revenue in the period. For the years ended December 31, 2021, 2020, and 2019, revenue recognized from performance obligations related to prior periods for the changes in transaction price or Client performance guarantees was $5.6 million, $1.9 million, and $0.8 million, respectively.

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Business Combinations

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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. 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. 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.

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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.

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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. Upon completion of the purchase accounting for the acquisition of Livongo on October 30, 2020, we allocated $1.05 billion of the total acquisition consideration to customer relationship intangibles, an amount which reflects both direct and channel-sourced customers that had been acquired by Livongo since it began offering its diabetes management program in 2014. The fair value of these customer relationships was determined based on the excess earnings method of the income approach. We determined the remaining weighted average useful life to be approximately 15.7 years based on historical Livongo attrition rates, estimated revenues from customers, and other qualitative factors, and we believe that our customer relationships are expected to make contributions to our future cash flows over this period. The Livongo customer relationships typically have a three-year contractual term, but the estimated useful life assumes renewals or extensions and considers historical attrition rates, which were calculated using actual Livongo attrition data, the largest factor in the estimation of the useful life. The weighted average attrition rate used in the determination of useful life was approximately 6.5%.

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Goodwill and Other Intangible Assets

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As of December 31, 2021, our balance of goodwill was $14.5 billion. Goodwill represents the excess of the total purchase consideration over the fair value of the identifiable assets acquired and liabilities assumed in a business combination. Goodwill is not amortized but is tested for impairment at the reporting unit level annually on October 1 or more frequently if events or changes in circumstances indicate that it is more likely than not to be impaired. These events include: (i) severe adverse industry or economic trends; (ii) significant company-specific actions, including exiting an activity in conjunction with restructuring of operations; (iii) current, historical or projected deterioration of our financial performance; or (iv) a sustained decrease in our market capitalization, as indicated by the Company’s publicly quoted share price, below our net book value. We currently operate as a single reporting unit under the guidance in ASC 350, “Intangibles- Goodwill and Other.”

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When testing goodwill for impairment, we have the option of first performing a qualitative assessment to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. If we elect to bypass the qualitative assessment, or if a qualitative assessment indicates it is more likely than not that carrying value exceeds its fair value, we perform a quantitative goodwill impairment test. Under the quantitative goodwill impairment test, if our reporting unit’s carrying amount exceeds its fair value, we will record an impairment charge based on that difference.

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To determine reporting unit fair value as part of the quantitative test, we use a weighting of fair values derived from the income approach and the market approach. Under the income approach, we project our future cash flows and discount these cash flows to reflect their relative risk. The cash flows used are consistent with those the Company uses in its internal planning, which reflects actual business trends experienced and our long-term business strategy. As such, key estimates and factors used in this method include, but are not limited to, revenue, margin, and operating expense growth rates, as well as a discount rate, and a terminal growth rate. Under the market approach, we use the guideline company method to develop valuation multiples and compare our reporting unit to similar publicly traded companies.

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In order to further validate the reasonableness of fair value as determined by the income and market approaches described above, a reconciliation to market capitalization is then performed by estimating a reasonable control premium and other market factors. Future changes in the judgments, assumptions and estimates that are used in the impairment testing for goodwill could result in significantly different estimates of fair value.

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As part of our annual goodwill impairment tests performed as of October 1, 2021 and 2020, no impairment was indicated as our reporting unit fair value significantly exceeded its carrying value.

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Other Intangible Assets

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Other intangible assets include customer relationships, non-compete agreements, acquired technology, patents, and trademarks resulting from business acquisitions, and capitalized software development costs. As of December 31, 2021, the aggregate balance of these assets was $1,910.3 million. We amortize these definite-lived intangible assets over their estimated useful lives as disclosed in Note 8 to the consolidated financial statements. We also review the useful lives on a quarterly basis to determine if the period of economic benefit has changed. Potential changes in useful lives, whether due to strategic decisions involving our brands, competitive forces, or other factors could result in additional amortization expense taking effect prospectively in the period of the change and could have a material impact on our consolidated financial statements. Customer relationships are amortized over a period of 2 to 20 years in relation to expected future cash flows. The useful lives of the customer relationships are subject to risks and uncertainties including future attrition rates. These considerations include, but are not limited to, the emergence of new competitor offerings, relative competitor pricing and scale, our ability to successfully integrate and manage the acquired customers, our level of success in delivering future innovation, and overall changes in economic and regulatory conditions. Significant changes in any one or a combination of considerations could lead us to update our weighted average attrition rate, which, in turn would impact the assigned useful life and the level of amortization expense recorded for our customer relationship intangibles. For example, a sustained increase in the customer attrition rate related to customers acquired in the Livongo transaction could prompt us to reduce our estimate of the remaining useful life of the customer relationships. Should this occur, a year’s reduction to the estimated life would result in an annual increase in amortization expense of approximately $5 million. 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 re-evaluated whenever events or changes in circumstances indicate that their estimated useful lives may require revision and/or the carrying value of the related asset group may not be recoverable by its projected undiscounted cash flows. If the carrying value of the asset group is determined to be unrecoverable, an impairment charge would be recognized in an amount equal to the amount by which the carrying value of the asset group exceeds its fair value. There were no events or changes in circumstances which indicated that the carrying value of the definite-lived intangible assets may not be recoverable during the year ended December 31, 2020.

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December 2021 Impairment Testing

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As a result of a sustained decrease in our Company share price following our annual impairment test on October 1, 2021, we concluded that a triggering event had occurred and conducted impairment testing of our goodwill, definite-lived intangibles and other long-lived assets as of December 1, 2021. As a result of this review, each of our asset groups identified for the purpose of testing the recoverability of our definite-lived intangibles and other long-lived assets passed the recoverability test by a significant margin. In addition, no goodwill impairment was indicated and the fair value of our reporting unit exceeded our carrying value but declined to an excess of approximately 15%. Consistent with the test performed on October 1, 2021, this estimate reflected a 75%/25% allocation between the income and market approach. We believe the 75% weighting to the income approach was appropriate as it more directly reflects the Company’s future growth and profitability expectations. There were no changes in our projected cash flows used in the impairment tests performed on each of these two dates. However, certain significant inputs to the valuation models were modified reflecting our view of the market’s perception of the associated risks of achieving our projected cash flows and other economic factors, as might be implied by the decline in the Company’s share price. The following table indicates the most significant changes to inputs and their resulting impact:

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Between the October 1, 2021, and December 1, 2021, assessments, our estimate of the reporting unit’s fair value decreased by approximately $3,200 million. The Company performed a sensitivity analysis of the key inputs to its valuation models and determined across a range of reasonable assumptions that no impairment was indicated at either assessment date in 2021.

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Overall, in the event there are future adverse changes in our projected cash flows and/or changes in key assumptions, including but not limited to an increase in our discount rate, lower market multiples, lower revenue growth, lower margin, and/or a lower terminal growth rate, we may be required to record a non-cash impairment charge to our goodwill, other intangibles and/or long-lived assets. Such a non-cash charge would likely have a material adverse effect on our consolidated statements of operations and balance sheets in the reporting period of the charge.

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While management believes the assumptions used in our impairment test are reasonable, the fair value estimate is most sensitive to our discount rate and market multiple assumptions as these amounts are reflective of the market’s perception of our ability to achieve our projected cash flows. The above table illustrates the changes in discount rates and selected peer revenue multiples between our October 1, 2021, and December 1, 2021, testing dates and the impact of those changes on our goodwill impairment testing results.

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In the period following December 31, 2021, there has been a further decline in the Company’s market capitalization, based upon the Company’s publicly quoted share price, below the Company’s carrying or book value. If this decline in our share price is sustained, it would require further testing of our goodwill in our next reporting period and it may result in an impairment of our goodwill. Absent changes to our projected cash flows, we would adjust our discount rate and market multiple assumptions as these amounts are reflective of the market’s perception of risks to achieving our projected cash flows and other economic factors. Those factors alone, or in combination with other factors, could cause our reporting unit carrying value to exceed its fair value, resulting in impairment. Should the fair value of our reporting unit decline a further $3,200 million, which was selected as an illustrative example because it approximates the decrease in estimated fair value between the Company’s October 1, 2021 and December 1, 2021 assessments, it would result in a goodwill impairment charge of approximately $800 million, all else held constant. A decline in fair value of twice that magnitude, or approximately 30%, could result in an impairment charge of approximately $4,000 million, all else held constant.

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Livongo Customer Relationships

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Upon completion of the purchase accounting for the acquisition of Livongo on October 30, 2020, we allocated $1.05 billion of the total acquisition consideration to customer relationship intangibles, an amount which reflects both direct and channel-sourced customers that had been acquired by Livongo since it began offering its diabetes management program in 2014. The fair value of these customer relationships was determined based on the excess earnings method of the income approach and incorporated assumptions including revenue growth, cash flows and other factors.

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Following the guidance in the Financial Accounting Standards Board (“FASB”) ASC 350, we determined the remaining weighted average useful life of the customer relationships to be approximately 15.7 years. The Livongo customer relationships typically have a three-year contractual term, however, in accordance with the guidance, our determination of the estimated useful life assumed renewals and extensions, and reflected actual historical attrition rates which comprised the largest contributing factor to the estimate of the useful life. The weighted average attrition rate used in the determination of useful life was approximately 6.5%.

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Due to a number of both macro and micro-economic factors, there are risks and uncertainties related to the attrition rates that are at least reasonably likely to occur. These factors include, but are not limited to, the emergence of new competitor offerings, relative competitor pricing and scale, our ability to successfully integrate and manage the acquired customers, our level of success in delivering future innovation, and overall changes in economic and regulatory conditions. Significant changes in any one or a combination of these types of factors could lead us to update our weighted average attrition rate, which, in turn would impact the assigned useful life and the level of pre-tax amortization recorded on our customer relationship intangibles.

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Income Taxes

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Our income tax expenses, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management's best assessment of estimated current and future taxes to be paid. The objectives for accounting for income taxes, as prescribed by the relevant accounting guidance, are to recognize the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities for future tax consequences of events that have been recognized in the financial statements. Deferred income taxes reflect the tax effect of temporary differences between asset and liability amounts that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. These deferred taxes are measured by applying currently enacted tax laws. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The assumptions about future tax consequences require significant judgment and variations in the actual outcome of these consequences could materially impact our results of operations. We recognize tax liabilities based on estimates of whether additional taxes and interest will be due. We adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense. As of December 31, 2021, we had approximately $110.8 million of unrecognized tax benefits.

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Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Determination of valuation allowances recorded against deferred tax assets requires significant judgment and use of assumptions, including past operating results, estimates of future taxable income and the feasibility of tax planning strategies. To the extent that new information becomes available which causes the Company to change its judgment regarding the adequacy of existing valuation allowances, such changes to tax liabilities will impact income tax expense in the period in which such determination is made. 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 and Livongo

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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. In 2021, upon filing its U.S. federal and state tax returns for the year ended December 31, 2020, the Company updated its deferred tax asset for NOLs and the related valuation allowance to reflect the amounts included on the tax returns and the current year losses. At the end of the year, the valuation allowance is $335.8 million.

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Components of Results of Operations

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

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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 (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 includes costs of technology enabling multiple modes of real-time communication, including via web browser, mobile application, voice / telephony, and text. These expenses increase or decrease as the level of revenue changes. 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 access 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.

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Advertising and Marketing Expenses

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Advertising and marketing expenses consist primarily of costs of digital and media 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.

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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.

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Sales Expenses

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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.

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Technology and Development Expenses

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Technology and development expenses include the costs of operating our on-demand technology infrastructure that are not directly related to changes in revenue or volume of visits, including licensed applications, information technology infrastructure, security, and compliance. The technology and development line item also contains amounts charged to expense for research and development, which include costs of new product development, costs to add new

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features or improve reliability or scalability of existing applications, and other software development and engineering costs to the extent that they are not capitalized. The research and development expenses may enable future revenue growth but are not directly related to current revenues.

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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 or scalability of our existing solutions. Technology and development expenses also include outsourced software engineering services, the costs of operating our on-demand technology infrastructure (whereas costs directly associated with revenue are presented separately in cost of revenues), licensed applications, and stock-based compensation for our technology and development employees. Our technology and development expenses exclude certain allocations of occupancy expense, capitalized software development costs, and depreciation and amortization.

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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, including the ability to capitalize software development costs. Historically, the majority of our technology and development costs have been expensed, except those costs that have been capitalized as software development costs.

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Acquisition, Integration, and Transformation Costs

Acquisition, integration, and transformation 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. It also includes costs related to certain business transformation initiatives focused on integrating and optimizing various operations and systems, including enhancing our customer relationship management (“CRM”) and enterprise resource planning (“ERP”) systems, incurred in connection with our acquisition and integration activities.

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General and Administrative Expenses

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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.

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We expect our general and administrative expenses to increase for the foreseeable future as we continue to grow our business. 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.

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Depreciation and Amortization

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

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Loss on Extinguishment of Debt

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Loss on extinguishment of debt consists of costs associated with debt refinancing including the write off of origination and termination financing fees and the redemption/conversion of convertible senior notes.

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Other (Income) Expense, Net

Other (income) expense, net includes the impact of foreign currency remeasurement, realized and unrealized gains on investment securities, and all other non-operating items not included in other financial statement lines.

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Interest Expense, Net

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Interest expense, net consists of interest costs associated with convertible senior notes and advances from financing companies, net of interest earned on cash and cash equivalents and short-term investments.

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Income Tax Expense (Benefit)

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Income tax expense (benefit) reflects management's best assessment of estimated current and future taxes to be paid. The objectives for accounting for income taxes, as prescribed by the relevant accounting guidance, are to recognize the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities for future tax consequences of events that have been recognized in the financial statements. See above for Critical Estimates and Policies.

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EBITDA and Adjusted EBITDA

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To supplement our financial information presented in accordance with U.S. generally accepted accounting principles (“GAAP”), we use earnings before interest, taxes, depreciation, and amortization (“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 and financial and business trends 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.

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EBITDA consists of net loss before interest; other (income) expense, net, including foreign exchange gain or loss; taxes; depreciation and amortization; and loss on extinguishment of debt. Adjusted EBITDA consists of net loss before interest; other (income) expense, net, including foreign exchange gain or loss; taxes; depreciation and amortization; loss on extinguishment of debt; stock-based compensation; and acquisition, integration, and transformation costs.

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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.

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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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