UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) July 23, 2018 (June 4, 2018)
Teladoc, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
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001-37477 |
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04-3705970 |
(State or other jurisdiction |
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(Commission |
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(IRS Employer |
2 Manhattanville Road, Suite 203 |
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10577 |
(Address of principal executive offices) |
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(Zip Code) |
(203) 635-2002
Registrants telephone number, including area code
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Explanatory Note
Teladoc, Inc. (the Company) hereby amends the Current Report on Form 8-K filed on June 4, 2018 to provide the financial statements and pro forma financial information required by Item 9.01 relating to the Companys acquisition of Advance Medical-HealthCare Management Services, S.A. (Advance Medical), as described in such Current Report.
Item 9.01. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
The audited consolidated financial statements of Advance Medical and its subsidiaries as of December 31, 2017 and 2016 and for each of the years in the two-year period ended December 31, 2017 are attached hereto as Exhibit 99.1, which is incorporated herein by reference.
The unaudited interim condensed consolidated financial statements of Advance Medical and its subsidiaries as of March 31, 2018 and for the three months ended March 31, 2018 and 2017 are attached hereto as Exhibit 99.2, which is incorporated herein by reference.
(b) Pro forma financial information.
The unaudited pro forma combined financial statements of the Company giving pro forma effect to the acquisition of Advance Medical and the issuance of the Companys 1.375% Convertible Senior Notes Due 2025 as of and for the three months ended March 31, 2018 and giving pro forma effect to the acquisitions of Best Doctors Holdings, Inc. and Advance Medical and the issuance of the Companys 1.375% Convertible Senior Notes Due 2025 for the year ended December 31, 2017, is attached hereto as Exhibit 99.3.
(d) Exhibits.
Exhibit |
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Description |
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23.1 |
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99.1 |
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99.2 |
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99.3 |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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TELADOC, INC. | |
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Date: July 23, 2018 |
By: |
/s/ Adam C. Vandervoort |
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Name: |
Adam C. Vandervoort |
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Title: |
Chief Legal Officer and Secretary |
Consent of Independent Auditors
We consent to the incorporation by reference in the registration statements (No. 333-205568 and No. 333-219275 on Form S-8 and No. 333-213894 and No. 333-221784 on Form S-3) of Teladoc, Inc. of our report dated July 23, 2018, with respect to the consolidated balance sheets of Advance Medical-HealthCare Management Services, S.A. and its subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income, stockholders equity, and cash flows for each of the years then ended, and the related notes, which report appears in the Current Report on Form 8-K/A of Teladoc, Inc. dated July 23, 2018.
/s/ KPMG Auditores, S.L.
Barcelona, Spain
July 23, 2018
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
|
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Page |
Consolidated Financial Statements of Advance Medical-HealthCare Management Services, S.A. |
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Report of Independent Auditors |
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F-2 |
Consolidated Balance Sheets |
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F-3 |
Consolidated Statements of Operations |
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F-4 |
Consolidated Statements of Comprehensive Income |
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F-5 |
Consolidated Statements of Stockholders Equity |
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F-6 |
Consolidated Statements of Cash Flows |
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F-7 |
Notes to Consolidated Financial Statements |
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F-8 |
Independent Auditors Report
The Board of Directors of
Advance Medical-HealthCare Management Services, S.A.
We have audited the accompanying consolidated financial statements of Advance Medical-HealthCare Management Services, S.A. and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income, stockholders equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Advance Medical-HealthCare Management Services, S.A. and its subsidiaries as of December 31, 2017 and 2016, and the results of their operations and their cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.
/s/ KPMG Auditores, S.L.
Barcelona, Spain
July 23, 2018
ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.
Consolidated Balance Sheets
(In thousands of Euros, except share and per share data)
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As of December 31, |
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2017 |
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2016 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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4,865 |
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4,509 |
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Short-term investments |
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2,435 |
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2,531 |
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Accounts receivable, net |
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5,704 |
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4,812 |
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Prepaid expenses and other current assets |
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443 |
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251 |
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Total current assets |
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13,447 |
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12,103 |
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Non current assets: |
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Property and equipment, net |
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1,766 |
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1,695 |
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Deferred income tax assets |
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307 |
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362 |
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Other assets |
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539 |
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587 |
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Total non current assets |
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2,612 |
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2,644 |
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Total assets |
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16,059 |
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14,747 |
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Liabilities and stockholders equity |
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Current liabilities: |
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Accounts payable |
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1,476 |
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456 |
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Accrued expenses and other current liabilities |
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4,607 |
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4,301 |
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Total current liabilities |
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6,083 |
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4,757 |
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Non-current liabilities: |
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Deferred taxes |
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163 |
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218 |
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Total non-current liabilities |
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163 |
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218 |
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Stockholders equity: |
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Common stock, 6.02 par value; 43,877 shares and 43,877 shares issued and outstanding as of December 31, 2017 and 2016, respectively |
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264 |
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264 |
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Additional paid-in capital |
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1,587 |
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1,587 |
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Accumulated other comprehensive income (loss) |
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7,946 |
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7,827 |
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Stockholders equity attributable to majority stockholders |
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9,797 |
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9,678 |
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Non-controlling interest |
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16 |
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94 |
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Total stockholders equity |
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9,813 |
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9,772 |
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Total liabilities and stockholders equity |
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16,059 |
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14,747 |
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See accompanying notes to consolidated financial statements.
ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.
Consolidated Statements of Operations
(In thousands of Euros, except share and per share data)
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Year Ended December 31, |
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2017 |
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2016 |
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Revenue |
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55,166 |
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48,012 |
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Cost of revenue |
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(35,460 |
) |
(30,359 |
) | ||
Gross profit |
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19,706 |
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17,653 |
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Operating expenses: |
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Advertising and marketing |
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(879 |
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(735 |
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Sales |
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(2,499 |
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(2,596 |
) | ||
Technology and development |
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(1,830 |
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(1,633 |
) | ||
General and administrative |
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(12,671 |
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(10,866 |
) | ||
Depreciation |
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(507 |
) |
(412 |
) | ||
Income /(Loss) from operations |
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1,320 |
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1,411 |
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Interest (expense) / income net |
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(24 |
) |
43 |
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Foreign currency transaction loss |
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(296 |
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178 |
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Net income before taxes |
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1,000 |
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1,632 |
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Income tax (benefit) provision |
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(783 |
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(565 |
) | ||
Net income / (loss) |
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217 |
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1,067 |
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Add: Net income / (loss) attributable to the non-controlling interest |
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(78 |
) |
51 |
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Net income / (loss) attributable to majority stockholders |
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295 |
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1,016 |
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Net income /(loss) per share, basic and diluted |
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4.95 |
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24.32 |
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Weighted-average shares used to compute basic and diluted net income /(loss) per share |
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43,877 |
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43,877 |
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See accompanying notes to consolidated financial statements.
ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.
Consolidated Statements of Comprehensive Income
(In thousands of Euros)
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Year Ended December 31, |
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2017 |
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2016 |
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Net income / (loss) |
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217 |
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1,067 |
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Other comprehensive income / (loss), net of tax: Cumulative translation adjustment |
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(176 |
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(215 |
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Other comprehensive income (loss), net of tax |
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(176 |
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(215 |
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Non-controlling interest |
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(78 |
) |
51 |
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Comprehensive income /(loss) attributable to majority stockholders |
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119 |
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801 |
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See accompanying notes toconsolidated financial statements
ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.
Consolidated Statements of Stockholders Equity
(in thousands, except share data)
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Accumulated |
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Additional |
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Other |
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Non- |
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Total |
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Common Stock |
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Paid-In |
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Comprehensive |
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controlling |
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Stockholders |
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Shares |
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Amount |
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Capital |
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Income / (loss) |
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interest |
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Equity |
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Balance as of December 31, 2015 |
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43,877 |
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264 |
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1,587 |
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7,026 |
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43 |
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8,920 |
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Other comprehensive income, net of tax |
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(215 |
) |
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(215 |
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Net income / (loss) |
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1,016 |
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51 |
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1,067 |
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Balance as of December 31, 2016 |
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43,877 |
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264 |
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1,587 |
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7,827 |
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94 |
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9,772 |
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Other comprehensive income, net of tax |
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|
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(176 |
) |
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(176 |
) | |||||
Net income / (loss) |
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295 |
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(78 |
) |
217 |
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Balance as of December 31, 2017 |
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43,877 |
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|
264 |
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1,587 |
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7,946 |
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16 |
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9,813 |
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See accompanying notes to consolidated financial statements.
ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.
Consolidated Statements of Cash Flows
(in thousands)
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Year Ended December 31, |
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2017 |
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2016 |
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Cash flows used in operating activities: |
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Net income / (loss) |
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217 |
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1,067 |
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Adjustments to reconcile net income /(loss) to net cash used in operating activities: |
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Depreciation |
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507 |
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412 |
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Foreing Excahnge (gain) / loss |
|
296 |
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(178 |
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Other results |
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57 |
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Changes in operating assets and liabilities: |
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|
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|
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Accounts receivable |
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(1,017 |
) |
(755 |
) | ||
Prepaid expenses and other current assets |
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(214 |
) |
(122 |
) | ||
Accounts payable |
|
694 |
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(53 |
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Accrued expenses and other current liabilities |
|
487 |
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563 |
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Net cash used in operating activities |
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970 |
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991 |
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Cash flows (used in) provided by investing activities: |
|
|
|
|
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Purchase of property and equipment |
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(672 |
) |
(640 |
) | ||
Purchase of other current assets |
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(27) |
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Proceeds form sale of property and equipment |
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71 |
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Proceeds from sale of other current assets |
|
142 |
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39 |
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Net cash (used in) provided by investing activities |
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(459 |
) |
(628 |
) | ||
Net (decrease) increase in cash and cash equivalents |
|
511 |
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363 |
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Foreign exchange difference |
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(155 |
) |
(74 |
) | ||
Cash and cash equivalents at beginning of the period |
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4,509 |
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4,220 |
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Cash and cash equivalents at end of the period |
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4,865 |
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4,509 |
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Supplemental disclosures of cash flow information |
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|
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Income taxes paid |
|
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599 |
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|
390 |
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Interest recieved |
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(6 |
) |
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(46 |
) |
Interest paid |
|
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30 |
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|
3 |
|
See accompanying notes to consolidated financial statements.
ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.
Notes to Consolidated Financial Statements
Note 1. Organization and Description of Business
ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A. (together with its consolidated subsidiaries, Advance Medical, or the Company) was incorporated in Spain in November 13, 1999 under name Centro Médico Virtual, S.A. On March 30, 2004 the Company changed its company name to the current name. The Companys principal executive offices are located in Barcelona, Spain as a leading telehealth company.
During the first quarter of year 2018, the parent company intends to complete the acquisition of the remaining percentages attributed to minority interests of the company Advance Medical Inc. (USA).
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The consolidated financial statements include the results of Advance Medical- Healthcare Management Services, S.A. and its subsidiaries. The detail of subsidiaries consolidated for the years ended December 31, 2017 and 2016, are as follows:
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Ownership |
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Amount of stockholding |
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Country |
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% Direct stockholding |
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(in thousands of Euros) |
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Name of subsidiary |
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location |
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Name of holder company |
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2017 |
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2016 |
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2017 |
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2016 |
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Advance Medical Inc. |
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USA |
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Advance Medical-Health Care Management Services, S.A. |
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90.38 |
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90.38 |
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1,111 |
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1,111 |
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Advance Medical Hungary KFT |
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Hungary |
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Advance Medical-Health Care Management Services, S.A. |
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80.87 |
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80.87 |
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38 |
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38 |
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Advance MedicalServiços de Consultoria e Gestão de Dados Lda |
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Brazil |
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Advance Medical-Health Care Management Services, S.A. |
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99.6 |
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99.6 |
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11 |
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11 |
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Advance Medical-Health Care Management Services Chile, S.A. |
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Chile |
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Advance Medical-Health Care Management Services, S.A. |
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99 |
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99 |
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205 |
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205 |
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Advance Medical-Health Care Management Consulting (Shanghai) Co., Ltd. |
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China |
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Advance Medical-Health Care Management Services, S.A. |
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100 |
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100 |
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810 |
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610 |
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AMHMS Health Care Management Services, S.A. |
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Portugal |
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Advance Medical-Health Care Management Services, S.A. |
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100 |
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100 |
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50 |
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50 |
|
All intercompany transactions and balances have been eliminated upon consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company bases its estimates on historical experience, current business factors, and various other assumptions that the Company believes are necessary to consider to form a basis for making judgments about the carrying values of assets and liabilities, the recorded amounts of revenue and expenses, and the disclosure of contingent assets and liabilities. The Company is subject to uncertainties such as the impact of future events, economic and political factors, and changes in the Companys business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of the Companys consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Companys operating environment evolves.
Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in reported results of operations; if material, the effects of changes in estimates are disclosed in the notes to the consolidated financial statements. Significant estimates and assumptions by management affect the carrying value of long-lived assets.
Segment Information
The Companys Chief Executive Officer (CEO), reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating its financial performance. Accordingly, the Company has determined that it operates in a single reportable segmenthealth services. Revenue earned by foreign operations outside of Spain were 19.5 million for the year ended December 31, 2017 and 15.2 million in 2016. Long- lived assets of foreign operations totaled 0.5 million as of December 31, 2017 and 0.6 million as of December 31, 2016.
Revenue Recognition
The Company generates most of its revenue from clients on a contractually recurring, per-Member-per-month, subscription access fee basis. Certain of the companys clients contracts generate revenues on a per case basis. Subscription access fees but also general medical and other specialty visit fees are paid by the Companys clients on behalf of their employees, dependents, policy holders, cardholders, beneficiaries or themselves.
The Company recognizes access fees on a monthly basis when the following criteria are met: (i) there is an executed subscription agreement, (ii) the Member is eligible to the service, (iii) the services are performed, (iv) collection of the fees is reasonably assured and (v) the amount of fees to be paid by the Client is fixed and determinable. The Companys agreements generally have a term of one year with automatic renewal.
Subscription Access Revenue
Subscription access revenue recognition commences on the date that the Companys services are made available to the Client, which is considered the starting date, provided all the other criteria described above are met. Historically, the Company has not paid any material amounts related to performance guarantees.
The Companys contracts do not generally contain refund provisions for fees earned related to services performed. In the USA (Advance Medical Inc.) the Company has contracts where it commits to performance guarantees that could potentially diminish revenues. Historically, clients have never executed on them.
Cost of Revenue
Cost of revenue primarily consists of fees paid to the providers, costs incurred in connection with the Companys Provider network operations center activities, which include employee-related expenses (including salaries and benefits) as well as costs related to medical records, magnetic resonance imaging, medical lab tests, translation, postage and medical malpractice insurance.
Cost of revenue is driven primarily by the number of general medical visits, expert second opinions and other specialty visits completed in each period. Our business and operational models are designed to be highly scalable and leverage variable costs to support revenue-generating activities. While we currently expect to continue to enhance our Provider network operations center as well as our sales and technology capabilities to support business growth, we believe our increased investment in automation and integration capabilities and economies of scale in our Provider network operations center operating model, will position us to grow our revenue at a greater rate than our cost of revenue.
Technology and Development Expenses
Technology and development expenses include personnel and related expenses for software engineering, information technology infrastructure, security and compliance and product development. Technology and development expenses also include outsourced software engineering services, the costs of operating our on-demand technology infrastructure and licensed applications. Our technology and development expenses exclude certain allocations of occupancy expense as well as depreciation and amortization.
General and Administrative Expenses
General and administrative expenses include personnel and related expenses of professional fees incurred by our executive, finance, product development, operations and human resources departments. They also include most of the facilities costs including utilities and facilities maintenance. Our general and administrative expenses exclude any allocation of depreciation and amortization.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less from the date of purchase. The Companys cash and cash equivalents generally consist of investments in money market funds. Cash and cash equivalents are stated at fair value.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts. The allowance for doubtful accounts is based on the Companys assessment of the collectability of accounts. The Company regularly reviews the adequacy of the allowance for doubtful accounts by considering the collection history and age of each outstanding invoice of each customer to determine whether a specific allowance is appropriate. Accounts receivable deemed uncollectable are charged against the allowance for doubtful accounts when identified. The Company has not booked any allowance for doubtful accounts for the years ended December 31, 2017 and 2016.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective asset as follows:
Computer equipment |
|
4 years |
Licenses and trademarks |
|
10 years |
Furniture and equipment |
|
10 years |
Other assets |
|
4 years |
Leasehold improvements |
|
Shorter of the lease term or the estimated useful lives of the improvements |
Maintenance and repairs are charged to expense as incurred while improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the consolidated statement of operations in the period realized.
Internal-Use Software
Internal-use software is included in intangible assets and is amortized on a straight-line basis over 4 years. For the Companys development costs related to its software development tools that enable its members and providers to interact, the Company capitalizes costs incurred during the application development stage. Costs related to minor upgrades, minor enhancements and maintenance activities are expensed as incurred.
Foreign Currency
The functional currency for each of our foreign subsidiaries is the local currency. All assets and liabilities denominated in a foreign currency are translated into Euros at the exchange rate on the balance sheet date. Revenues and expenses are translated at the weighted average exchange rate during the period. Cumulative translation gains or losses are included in stockholders equity as a component of accumulated other comprehensive income (loss) . For the year ended December 31, 2017, realized foreign exchange gain was 0.3 million (0.2 million foreign exchange loss in 2016) and was recognized in the Companys consolidated statement of operations.
Income Taxes
The Company accounts for income taxes using the liability method, under which deferred tax assets and liabilities are determined based on the future tax consequences attributable to differences between the financial reporting carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards and net operating loss carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be in effect when the differences are expected to reverse.
The Company assesses the likelihood that deferred tax assets will be recovered from future taxable income, and a valuation allowance is established when necessary to reduce deferred tax assets to the amounts more likely than not expected to be realized.
The Company recognizes and measures uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Significant judgment is required to evaluate uncertain tax positions. The Company evaluates its uncertain tax positions on a regular basis. Its evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of audit and effective settlement of audit issues. The Companys policy is to include interest and penalties related to unrecognized tax benefits as a component of interest expense, net in the consolidated statements of operations.
New tax legislation, commonly referred to as the Tax Cuts and Jobs Act, was enacted on December 22, 2017. Authoratative accounting guidance requires companies based in the US to recognize the effect of tax law changes in the period of enactment. Certain key aspects of the new law are effective January 1, 2018 and other key aspects have an immediate accounting effect for the year ended December 31, 2017. Refer to Note 7.
Comprehensive Income / (Loss)
Comprehensive income / (loss) consists of net loss and cumulative translation gains or losses. Unrealized gains or losses are net of any reclassification adjustments for realized gains and losses included in the consolidated statements of operations.
Net Income /(Loss) Per Share
Basic net income /(loss) per share is computed by dividing the net income /(loss) by the weighted-average number of shares of common stock of the Company outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of common stock and outstanding stock options, warrants and convertible notes, to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive.
Warranties and Indemnification
The Companys arrangements generally include certain provisions for indemnifying clients against liabilities if there is a breach of a Clients data or if the Companys service infringes a third partys intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnifications.
The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the persons service as a director or officer, including any action by the Company, arising out of that persons services as a director or officer or that persons services provided to any other company or enterprise at the Companys request. The Company maintains director and officer liability insurance coverage that would generally enable it to recover a portion of any future amounts paid. The Company may also be subject to indemnification obligations by law with respect to the actions of its employees under certain circumstances and in certain jurisdictions.
Advertising and Marketing Expenses
Advertising and marketing include all communications and campaigns to the Companys clients and members, digital advertising and related employees costs and are expensed as incurred. For the years ended December 31, 2017 and 2016, advertising expenses were 0.9 million and 0.7 million, respectively.
Sales Expenses
Sales expenses consist primarily of employee-related expenses, including salaries, benefits, commissions, employment taxes, travel and account management and sales support in addition to commissions paid to external brokers. Sales expenses exclude certain allocations of occupancy expense as well as depreciation and amortization.
Concentrations of Risk and Significant Clients
The Companys financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and accounts receivable. Also the Company deposits its cash with several financial institutions in Spain and in foreign countriesThe Companys short-term investments mostly are comprised of investments funds with maturity durations of one year or less.
Revenue from clients located in Spain for the year ended December 31, 2017 and 2016 were 35.7 million and 32.8 million, respectively. Revenue from clients located outside Spain for the year ended December 31, 2017 and 2016 were 19.5 million and 15.2 million, respectively.
One Client represented between 10%-13% of revenue for the years ended December 31, 2017 and 2016.
No Client represented over 10% of accounts receivable at December 31, 2017 and 2016.
The Company has policies to ensure that sales are made to customers with an appropriate credit track record.
Recently Issued and Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under GAAP. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the revised guidance requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The revised guidance is effective for the Company beginning in the quarter ending March 31, 2018; early adoption is allowed. The revised guidance is required to be applied retrospectively to each prior reporting period presented or modified retrospectively applied with the cumulative effect of initially applying it recognized at the date of initial application. The Company plans to adopt this standard on January 1, 2018 utilizing the modified retrospective approach. The Company underwent a process of identifying the various types of revenue streams, performed an evaluation of the components of the associated contractual arrangements and determined that the adoption of the new standard is expected to have no impact on the condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 outlines a comprehensive lease accounting model and supersedes the current lease guidance. The new guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. The new guidance must be adopted using the modified retrospective approach and will be effective for the Company starting in the first quarter of fiscal 2019. Early adoption is permitted. The Company is currently in the process of evaluating the impact of the adoption of this standard on the consolidated financial statements.
Note 3. Fair Value Measurements
The Company measures its financial assets and liabilities at fair value at each reporting period using a fair value hierarchy that requires it to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instruments classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:
Level 1Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2Include other inputs that are directly or indirectly observable in the marketplace.
Level 3Unobservable inputs that are supported by little or no market activity.
The Company measures its cash equivalents at fair value on a recurring basis. The Company classifies its cash equivalents within Level 1 because they are valued using observable inputs that reflect quoted prices for identical assets in active markets and quoted prices directly in active markets.
The Company measures certain of its short-term investments at fair value on a recurring basis and classifies such as Level 1. They are valued using observable inputs that reflect quoted prices directly in active markets. These short-term investments corresponds to the fair value of the participation which the parent company holds in the DWS Fondeposito Plus class A investment fund and investments in short term deposits in financial entities.
Other non-current assets for an amount of 0.5 million as of December 31, 2017 and 2016, classified as Level 2, correspond to the outstanding amount of loans granted to some of the stockholders of the parent company after the sale, with effect from January 9, 2015 of the own shares of the parent company. Mentioned loans accrued interest Euribor 3 months plus a 1.1 percentage points margin and expire January 9, 2025. These loans are valued at amortized cost which approximates fair value. On January 19, 2018, said loans have been fully paid, see note 12.
The following tables present information about the Companys assets and liabilities that are measured at fair value on a recurring basis using the above input categories (in thousands):
|
|
December 31, 2017 |
| ||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
Cash and cash equivalents |
|
|
4,865 |
|
|
|
|
|
|
|
|
4,865 |
|
Short-term investments |
|
2,435 |
|
|
|
|
|
2,435 |
| ||||
Other non-current assets |
|
|
|
|
|
539 |
|
|
|
|
|
539 |
|
|
|
December 31, 2016 |
| ||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
Cash and cash equivalents |
|
|
4,509 |
|
|
|
|
|
|
|
|
4,509 |
|
Short-term investments |
|
2,531 |
|
|
|
|
|
2,531 |
| ||||
Other non-current assets |
|
|
|
|
|
587 |
|
|
|
|
|
587 |
|
There were no transfers between fair value measurement levels during the years ended December 31, 2017 and 2016.
Note 4. Property and Equipment, Net
Property and equipment, net, consist of the following (in thousands):
|
|
As of December 31, |
| ||||
|
|
2017 |
|
2016 |
| ||
Computer equipment and computer software |
|
|
1,697 |
|
1,304 |
| |
Furniture and equipment and leasehold improvements |
|
2,637 |
|
2,571 |
| ||
Construction in progress |
|
51 |
|
|
| ||
Total |
|
3,105 |
|
2,988 |
| ||
Accumulated depreciation |
|
(2,698 |
) |
(2,151 |
) | ||
Property and equipment, net |
|
|
1,766 |
|
|
1,695 |
|
Depreciation expense for the years ended December 31, 2017 and 2016 was 0.5 million and 0.4 million, respectively. Currency translation adjustments for the years ended December 31, 2017 and 2016 was -0.1 million and 0.1 million, respectively.
Note 5. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
|
|
As of December 31, |
| ||||
|
|
2017 |
|
2016 |
| ||
|
|
|
|
|
| ||
Professional, consulting, legal and marketing fees |
|
|
1,279 |
|
|
1,799 |
|
Deferred revenue |
|
484 |
|
452 |
| ||
Wages and salaries |
|
1,643 |
|
676 |
| ||
Taxes payable and other tax liabilities |
|
1,201 |
|
1,374 |
| ||
Total |
|
|
4,607 |
|
|
4,301 |
|
Operating Leases
The Company leases office space under non-cancelable operating leases in the Spain and various international locations. As of December 31, 2017 and 2016, the future minimum lease payments under non-cancelable operating leases are as follows (in thousands):
|
|
As of December 31, |
| ||||
|
|
2017 |
|
2016 |
| ||
|
|
|
|
|
|
|
|
Until 1 year |
|
|
212 |
|
|
262 |
|
Until 2 years |
|
165 |
|
137 |
| ||
Until 3 years |
|
165 |
|
137 |
| ||
Until 4 years |
|
168 |
|
137 |
| ||
Until 5 years |
|
169 |
|
141 |
|
All of the total future minimum lease payments relate to facilities space. The facility lease agreements generally provide for rental payments on a graduated basis and for options to renew, which could increase future minimum lease payments if exercised. The Company recognizes rent expense on a straight-line basis over the lease period and has accrued for rent expense incurred but not paid. Deferred rent represents the difference between actual operating lease payments due and straight-line rent expense. The excess is recorded as a deferred rent liability in the early periods of the lease, when cash payments are generally lower than straight-line rent expense, and are reduced in the later periods of the lease when payments begin to exceed the straight-line expense. The Company also accounts for leasehold improvement incentives within its deferred rent liability. Rent expense for the years ended December 31, 2017 and 2016 was 1.0 million and 0.9 million, respectively.
Note 6. Common Stock and Stockholders Equity
Capitalization
As of December 31, 2017 and 2016, the Parent Companys share capital consisted of 43,877 issued common shares, with 6.02 par value each. For each common share held, the stockholder has the right to one vote at the stockholders meetings.
As indicated in note 12, effective January 19, 2018 the authorized number of shares of the Companys common stock was increased from 43,877 to 52,736 shares. At the date of preparation of the present consolidated annual accounts, the companies involved directly or indirectly in a percentage equal to or greater than 10% in the share capital of the parent company is Advance Holdco Limited and Peralsi, S.L.
Additional paid-in capital
This reserve has no restrictions and is fully distributable.
Note 7. Income Taxes
The Company follows the provisions of the accounting guidance on accounting for income taxes which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided to reduce the deferred tax asset to a level which, more likely than not, will be realized.
For financial reporting purposes, income (loss) before income taxes for the years ended December 31, 2017 and 2016 include the following components (in thousands):
|
|
Year Ended December 31, |
| ||||
|
|
2017 |
|
2016 |
| ||
Domestic |
|
|
2,323 |
|
|
2,507 |
|
International |
|
(1,323 |
) |
(875 |
) | ||
Total |
|
|
1,000 |
|
|
1,632 |
|
The provision (benefit) for income taxes is comprised of the following components (in thousands):
|
|
Year Ended December 31, |
| ||||
|
|
2017 |
|
2016 |
| ||
Current federal |
|
|
782 |
|
|
641 |
|
Total current |
|
782 |
|
641 |
| ||
Deferred federal |
|
|
|
(2 |
) | ||
Deferred foreign |
|
1 |
|
(74 |
) | ||
Total deferred |
|
1 |
|
(74 |
) | ||
Total provision / (benefit) |
|
|
783 |
|
|
565 |
|
The corporate income tax rate applicable to the Group is predominantly 25%. The income tax rate applicable to the majority of income of foreign subsidiaries ranges from 25% to 35%.
The provision for income taxes differs from the amount computed by applying the statutory income tax rate to income before provision for income taxes. Details of the income tax expense and income tax related to income for the year are as follows:
|
|
As of December 31, |
| ||||
|
|
2017 |
|
2016 |
| ||
Net income before income tax from continuing operations |
|
|
1.000 |
|
|
1.632 |
|
Tax at 25% and 28% |
|
250 |
|
408 |
| ||
Non taxable income |
|
(49 |
) |
(70 |
) | ||
Non deductible expenses |
|
111 |
|
74 |
| ||
Effect of different tax rates and impact related to the US tax legislation modification |
|
515 |
|
188 |
| ||
Tax credits (deductions) |
|
(44 |
) |
(35 |
) | ||
Total income tax expense |
|
|
783 |
|
|
565 |
|
Deferred tax |
|
1 |
|
(76 |
) | ||
Current tax |
|
782 |
|
641 |
| ||
Total income tax expense |
|
|
783 |
|
|
565 |
|
The Companys deferred tax assets and liabilities consist of the following (in thousands):
|
|
As of December 31, |
| ||||
|
|
2017 |
|
2016 |
| ||
Deferred tax assets: |
|
|
|
|
| ||
Net operating loss carryforwards |
|
|
1,010 |
|
|
1,617 |
|
Amortization of property and equipment |
|
16 |
|
18 |
| ||
Accrued expenses, deferred rent expense and Other (US) |
|
13 |
|
106 |
| ||
Deferred tax assets |
|
1,039 |
|
1,741 |
| ||
Valuation allowance |
|
(732 |
) |
(1,379 |
) | ||
Net deferred tax assets |
|
307 |
|
362 |
| ||
|
|
|
|
|
| ||
Deferred tax liabilities: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Impairment of investment in subsidiaries |
|
(163 |
) |
(218 |
) | ||
Deferred tax liabilities |
|
(163 |
) |
(218 |
) | ||
|
|
|
|
|
| ||
Net deferred tax assets |
|
|
144 |
|
|
144 |
|
As of December 31, 2017, the Company has a valuation allowance of approximately 0.7 million against most of the net deferred tax assets from the US affiliate, for which realization cannot be considered more likely than not at this time (1.4 million as of December 31, 2016). The Company has recognized net deferred tax assets for an amount of 0.3 million as of December 31, 2017 and 2016, respectively. The deferred tax liability is the result of the temporary difference resulting from the depreciation of the investment in subsidiaries, which is not tax deductible until its reversal.
In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and past financial performance. The US affiliate remains in a significant cumulative loss position as of December 31, 2017 and, as a result, management believes a significant valuation allowance against all domestic net deferred tax assets as of December 31, 2017 and 2016. The valuation allowance against these deferred tax assets may require adjustment in the future based on changes in the mix of temporary differences, changes in tax laws, and operating performance. If and when the Company determines the valuation allowance should be released (i.e., reduced), the adjustment would result in a tax benefit reported in that periods Consolidated Statements of Operations, the effect of which would be an increase in reported net income. The amount of any such tax benefit associated with release of our valuation allowance in a particular reporting period may be material.
The valuation allowance movement corresponds, in an amount of Euros 601 thousand to the tax rate decrease in the United Estates and in an amount of Euros 46 thousand to the exchange rate variation.
H.R. 1, new tax legislation, commonly referred to as the Tax Cuts and Jobs Act, was enacted on December 22, 2017. The Tax Act includes significant changes to the Internal Revenue Code of 1986, as amended, including amendments which significantly change the taxation of business entities. ASC 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment.
The Tax Act reduces the U.S. statutory tax rate from 34 percent to 21 percent for years after 2017. Accordingly, the US affiliate has remeasured the U.S. deferred tax assets as of December 31, 2017 to reflect the reduced rate that will apply in future periods when these deferred taxes will reverse, resulting in a reduction of the net deferred tax assets, by approximately 0.6 million, which is offset by the change in valuation allowance by 0.6 million.
As of December 31, 2017, the US affiliate has federal and state net operating loss carryforwards. The federal net operating loss carryforwards of 4.2 million and 2.5 million respectively, which begin to expire in 2028 and 2027, respectively.
Utilization of the net operating loss carryforwards and foreign tax credits may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future in accordance with Section 382 of the Internal Revenue Code of 1986, or Section 382, as well as similar state provisions. These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income. In general an ownership change as defined by Section 382 results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period.
The Company is subject to income taxes in Spain and numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. The Company establishes reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. The Company adjusts these reserves in light of changing facts and circumstances, such as the outcome of tax audit. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business the Company is subject to examination by federal and state jurisdictions in the Spain and other countries, where applicable. There are currently no pending tax examinations. The Company thus is still open under the U.S. statute from 2014 to the present and as early as 2014 to the present for foreign jurisdictions. Earlier years may be examined to the extent that loss carryforwards are used in future periods. There are no tax matters under discussion with taxing authorities that are expected to have a material effect on the Companys consolidated financial statements.
The Companys policy is to include interest and penalties related to unrecognized tax benefits as a component of interest expense, net in the consolidated statements of operations.
Note 8. Net Income per Share
Basic net income per share is computed by dividing the net income/(loss) by the weighted-average number of shares of common stock of the Company outstanding during the period. Diluted net income /(loss) per share is computed by giving effect to all potential shares of common stock of the Company, and outstanding stock options, warrants and convertible notes, to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential shares of common stock of the Company outstanding would have been anti-dilutive. The
Company does not have outstanding stock options nor outstanding restricted stock units as of December 31, 2017 and 2016.
The following table presents the calculation of basic and diluted net loss per share for the Companys common stock (in thousands, except shares and per share data):
|
|
Year Ended December 31, |
| ||||
|
|
2017 |
|
2016 |
| ||
Net income /(loss) |
|
|
217 |
|
|
1,067 |
|
Weighted-average shares used to compute basic and diluted net income /(loss) per share |
|
43,877 |
|
43,877 |
| ||
Net income per share, basic and diluted |
|
|
4.95 |
|
|
24.32 |
|
Note 9. 401(k) Plan
The Company has established a salary deferral 401(k) plan for employees in the United States that qualifies as a deferred compensation arrangement under Section 401 of the Internal Revenue Code. All employees over the age of 21 are eligible to participate in the plan. The Plan allows employees to defer a portion of their compensation with a partial matching contribution by the Company. Matching contributions to the Plan totaled 0.08 million and 0.09 million for the years ended December 31, 2017 and 2016, respectively.
Note 10. Non-recurring costs
As of December 31, 2017, the statement of income include certain non-recurring costs related to the transaction disclosed in note 12. These costs, which have been previously agreed with the new stockholder of the Company, primarily correspond to incentives paid to key management staff and some employees contracted to do so.
As these costs are not related to the normal course of the business of the Company, they should be considered when analyzing this consolidated financial statements.
The impact on the Income from operations totals 1.5 million.
The impact on the stockholders equity as of December 31, 2017 totals 1.4 millions.
Note 11. Legal Matters
The Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of its business. At December 31, 2017, the Company is not a party to any material legal proceeding, and it is not aware of any pending or threatened litigation that would have a material adverse effect on its business, results of operations, cash flows or financial condition should such litigation be resolved unfavorably.
Note 12. Subsequent Events
Dated January 19, 2018, the parent company has increased its common stock in an amount of 53,331 by issuance of 8,859 new shares, 6,02 of nominal value each one of them and with a total share premium of 2,946,726. At the date of preparation of the present consolidated annual accounts, the companies involved directly or indirectly in a percentage equal to or greater than 10% in the share capital of the parent company is Advance Holdco Limited and Peralsi, S.L.
During the first quarter of the year 2018, the parent company has proceeded to the acquisition of the remaining 9.62% of participation in Advance Medical Inc. (USA) so at the date of preparation of the present consolidated financial statements, the Parent company owns 100% of such participation. The consideration paid has totalled $2.1 million.
As indicated in note 2, Other non-current assets for an amount of 0.5 million as of December 31, 2107 and 2016 corresponded to the outstanding amount of loans granted to some of the stockholders of the parent company after the sale, with effect from January 9, 2015 of the own shares of the parent company. Mentioned loans have been fully paid dated January 19 2018.
On May 31, 2018, Teladoc, Inc. completed the acquisition of 100% of the shares of the Company. The aggregate purchase price of the acquisition was $353.1 million.
ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.
QUARTERLY REPORT
Index to Financial Statements
|
|
Page |
Unaudited Interim Condensed Consolidated Financial Statements of Advance Medical-HealthCare Management Services, S.A. |
|
|
Condensed Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017 |
|
F-2 |
Condensed Consolidated Statements of Operations (unaudited) for the three months ended ended March 31, 2018 and 2017 |
|
F-3 |
Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three months ended ended March 31, 2018 and 2017 |
|
F-4 |
Condensed Consolidated Statements of Stockholders Equity for the three months ended March 31, 2018 (unaudited) and December 31, 2017 |
|
F-5 |
Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2018 and 2017 |
|
F-6 |
Notes to Unaudited Condensed Consolidated Financial Statements |
|
F-7 |
ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.
Condensed Consolidated Balance Sheets
(In thousands of Euros, except share and per share data, unaudited)
|
|
March 31, |
|
December 31, |
| ||
Assets |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
|
6,009 |
|
|
4,865 |
|
Short-term investments |
|
2,422 |
|
2,435 |
| ||
Accounts receivable, net |
|
7,396 |
|
5,704 |
| ||
Prepaid expenses and other current assets |
|
523 |
|
443 |
| ||
Total current assets |
|
16,350 |
|
13,447 |
| ||
Non current assets: |
|
|
|
|
| ||
Property and equipment, net |
|
1,892 |
|
1,766 |
| ||
Deferred income tax assets |
|
362 |
|
307 |
| ||
Other assets |
|
103 |
|
539 |
| ||
Total non current assets |
|
2,357 |
|
2,612 |
| ||
Total assets |
|
|
18,707 |
|
|
16,059 |
|
Liabilities and stockholders equity |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Accounts payable |
|
|
529 |
|
|
1,476 |
|
Accrued expenses and other current liabilities |
|
6,141 |
|
4,607 |
| ||
Total current liabilities |
|
6,670 |
|
6,083 |
| ||
Non-current liabilities: |
|
|
|
|
| ||
Deferred taxes |
|
163 |
|
163 |
| ||
Total non-current liabilities |
|
163 |
|
163 |
| ||
Stockholders equity: |
|
|
|
|
| ||
Common stock, 6.02 par value; 52,736 shares and 43,877 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively |
|
317 |
|
264 |
| ||
Additional paid-in capital |
|
4,534 |
|
1,587 |
| ||
Accumulated other comprehensive income |
|
6,828 |
|
7,946 |
| ||
Stockholders equity attributable to majority stockholders |
|
11,679 |
|
9,797 |
| ||
Non-controlling interest |
|
195 |
|
16 |
| ||
Total stockholders equity |
|
11,874 |
|
9,813 |
| ||
Total liabilities and stockholders equity |
|
|
18,707 |
|
|
16,059 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.
Condensed Consolidated Statements of Operations
(In thousands of Euros, except share and per share data, unaudited)
|
|
Three Months Ended March 31, |
| ||||
|
|
2018 |
|
2017 |
| ||
Revenue |
|
|
15,024 |
|
|
12,756 |
|
Cost of revenue |
|
(9,541 |
) |
(8,520 |
) | ||
Gross profit |
|
5,483 |
|
4,236 |
| ||
Operating expenses: |
|
|
|
|
| ||
Advertising and marketing |
|
(386 |
) |
(525 |
) | ||
Sales |
|
(640 |
) |
(634 |
) | ||
Technology and development |
|
(682 |
) |
(680 |
) | ||
General and administrative |
|
(2,531 |
) |
(2,470 |
) | ||
Depreciation and amortization |
|
(124 |
) |
(111 |
) | ||
Income /(Loss) from operations |
|
1,120 |
|
(184 |
) | ||
Interest (expense) / income, net |
|
(10 |
) |
7 |
| ||
Foreign currency transaction loss |
|
(84 |
) |
|
| ||
Net income / (loss) before taxes |
|
1,026 |
|
(191 |
) | ||
Income tax (benefit) provision |
|
(195 |
) |
(13 |
) | ||
Net income / (loss) |
|
|
831 |
|
|
(204 |
) |
Add: Net income / (loss) attributable to the non-controlling interest |
|
20 |
|
25 |
| ||
Net income / (loss) attributable to majority stockholders |
|
|
811 |
|
|
(229 |
) |
Net income /(loss) per share, basic and diluted |
|
|
16.12 |
|
|
(4.65 |
) |
|
|
|
|
|
| ||
Weighted-average shares used to compute basic and diluted net income /(loss) per share |
|
51,555 |
|
43,877 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.
Condensed Consolidated Statements of Comprehensive Income
(In thousands of Euros, unaudited)
|
|
Three Months Ended March 31, |
| ||||
|
|
2018 |
|
2017 |
| ||
Net income / (loss) |
|
|
831 |
|
|
(204 |
) |
Other comprehensive income / (loss), net of tax: |
|
|
|
|
| ||
Cumulative translation adjustment |
|
(57 |
) |
(33 |
) | ||
Other comprehensive income (loss), net of tax |
|
(57 |
) |
(33 |
) | ||
Non-controlling interest |
|
20 |
|
25 |
| ||
Comprehensive income /(loss) attributable to majority stockholders |
|
|
754 |
|
|
(262 |
) |
See accompanying notes to unaudited condensed consolidated financial statements.
ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.
Condensed Consolidated Statements of Stockholders Equity
(in thousands, except share data, unaudited)
|
|
Common Stock |
|
Additional |
|
Accumulated |
|
Non- |
|
Total |
| |||||||
|
|
Shares |
|
Amount |
|
Capital |
|
Income / (loss) |
|
interest |
|
Equity |
| |||||
Balance as of December 31, 2017 |
|
43,877 |
|
264 |
|
1,587 |
|
7,946 |
|
16 |
|
9,813 |
| |||||
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
(57 |
) |
|
|
(57 |
) | |||||
Issuance of common stock |
|
8,859 |
|
53 |
|
2,947 |
|
|
|
|
|
3,000 |
| |||||
Acquisition of non-controlling interest |
|
|
|
|
|
|
|
(1,848 |
) |
159 |
|
(1,689 |
) | |||||
Other movements |
|
|
|
|
|
|
|
(24 |
) |
|
|
(24 |
) | |||||
Net income / (loss) |
|
|
|
|
|
|
|
811 |
|
20 |
|
831 |
| |||||
Balance as of March 31, 2018 |
|
52,736 |
|
|
317 |
|
|
4,534 |
|
|
6,828 |
|
|
195 |
|
|
11,874 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.
Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)
|
|
Three Months Ended March 31, |
| ||||
|
|
2018 |
|
2017 |
| ||
Cash flows used in operating activities: |
|
|
|
|
| ||
Net profit / (loss) |
|
|
831 |
|
|
(204 |
) |
Adjustments to reconcile net profit /(loss) to net cash used in operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
|
124 |
|
111 |
| ||
Foreing Excahnge (gain) / loss |
|
84 |
|
|
| ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Accounts receivable |
|
(1,717 |
) |
956 |
| ||
Prepaid expenses and other current assets |
|
(84 |
) |
(76 |
) | ||
Accounts payable |
|
(933 |
) |
226 |
| ||
Accrued expenses and other current liabilities |
|
1,576 |
|
(279 |
) | ||
Net cash used in operating activities |
|
(119 |
) |
734 |
| ||
Cash flows (used in) provided by investing activities: |
|
|
|
|
| ||
Purchase of property and equipment |
|
(253 |
) |
(111 |
) | ||
Purchase of other current assets |
|
|
|
(47 |
) | ||
Proceeds form sale of property and equipment |
|
|
|
|
| ||
Proceeds from sale of other current assets |
|
449 |
|
98 |
| ||
Net cash (used in) provided by investing activities |
|
196 |
|
(60 |
) | ||
Cash flows (used in) provided by financing activities: |
|
|
|
|
| ||
Proceeds for issuance of common stock |
|
3,000 |
|
|
| ||
Purchase of non-controlling interest |
|
(1,872 |
) |
|
| ||
Net cash (used in) provided by financing activities |
|
1,128 |
|
|
| ||
Net (decrease) increase in cash and cash equivalents |
|
1,205 |
|
674 |
| ||
Foreign exchange difference |
|
(61 |
) |
260 |
| ||
Cash and cash equivalents at beginning of the period |
|
4,865 |
|
4,509 |
| ||
Cash and cash equivalents at end of the period |
|
|
6,009 |
|
|
5,443 |
|
|
|
|
|
|
| ||
Income taxes paid |
|
|
|
|
|
|
|
Interest paid |
|
|
10 |
|
|
7 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Organization and Description of Business
ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A. (together with its consolidated subsidiaries, Advance Medical, or the Company) was incorporated in Spain in November 13, 1999 under name Centro Médico Virtual, S.A. On March 30, 2004 the Company changed its company name to the current name. The Companys principal executive offices are located in Barcelona, Spain as a leading telehealth company.
During January 2018, the parent company has completed the acquisition of the remaining percentages attributed to minority interests of the company Advance Medical Inc. (USA).
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) regarding interim financial reporting. Accordingly, such financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Companys management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals and adjustments) necessary to present fairly the financial position, results of operations and cash flows of the Company at the dates and for the periods indicated. The interim results for the three months ended March 31, 2018 are not necessarily indicative of results for the full 2018 calendar year or any other future interim periods. As such, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2017.
The consolidated balance sheet at December 31, 2017 was derived from the audited financial statements at that date, but does not include all of the disclosures required by GAAP.
The unaudited condensed consolidated financial statements include the results of Advance Medical-Healthcare Management Services, S.A. and its subsidiaries. The detail of subsidiaries consolidated for the three months period ended March 31, 2018 and the year ended December 31, 2017, are as follows:
|
|
Country |
|
|
|
Ownership |
|
Amount of stockholding |
| ||||
Name of subsidiary |
|
location |
|
Name of holder company |
|
3/31/2018 |
|
12/31/2017 |
|
3/31/2018 |
|
12/31/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advance Medical Inc. |
|
USA |
|
Advance Medical-Health Care Management Services, S.A. |
|
100 |
|
90.38 |
|
2,800 |
|
1,111 |
|
Advance Medical Hungary KFT |
|
Hungary |
|
Advance Medical-Health Care Management Services, S.A. |
|
100 |
|
80.87 |
|
38 |
|
38 |
|
Advance MedicalServiços de Consultoria e Gestão de Dados Lda |
|
Brazil |
|
Advance Medical-Health Care Management Services, S.A. |
|
99.9 |
|
99.6 |
|
11 |
|
11 |
|
Advance Medical-Health Care Management Services Chile, S.A. |
|
Chile |
|
Advance Medical-Health Care Management Services, S.A. |
|
99.9 |
|
99 |
|
205 |
|
205 |
|
Advance Medical-Health Care Management Consulting (Shanghai) Co., Ltd. |
|
China |
|
Advance Medical-Health Care Management Services, S.A. |
|
100 |
|
100 |
|
810 |
|
810 |
|
AMHMS Health Care Management Services, S.A. |
|
Portugal |
|
Advance Medical-Health Care Management Services, S.A. |
|
100 |
|
100 |
|
50 |
|
50 |
|
All intercompany transactions and balances have been eliminated upon consolidation.
The Company adopted ASU 2014-09, Revenue from Contracts with Customers during the quarter ended March 31, 2018, as described below. There have been no other changes to the significant accounting policies described in the consolidated financial statements and accompanying notes for the year ended December 31, 2017 that have had a material impact on the unaudited condensed consolidated financial statements and related notes.
Recently Issued and Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under GAAP. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the revised guidance requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The revised guidance is effective for the Company beginning in the quarter ending March 31, 2018; early adoption is allowed. The revised guidance is required to be applied retrospectively to each prior reporting period presented or modified retrospectively applied with the cumulative effect of initially applying it recognized at the date of initial application. The Company adopted this standard on January 1, 2018 utilizing the modified retrospective approach. The Company underwent a process of identifying the various types of revenue streams, performed an evaluation of the components of the associated contractual arrangements and determined that the adoption of the new standard had no impact on the condensed consolidated financial statements . See Note 3 Revenue, for further information.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 outlines a comprehensive lease accounting model and supersedes the current lease guidance. The new guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. The new guidance must be adopted using the modified retrospective approach and will be effective for the Company starting in the first quarter of fiscal 2019. Early adoption is permitted. The Company is currently in the process of evaluating the impact of the adoption of this standard on the unaudited condensed consolidated financial statements .
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company bases its estimates on historical experience, current business factors, and various other assumptions that the Company believes are necessary to consider to form a basis for making judgments about the carrying values of assets and liabilities, the recorded amounts of revenue and expenses, and the disclosure of contingent assets and liabilities. The Company is subject to uncertainties such as the impact of future events, economic and political factors, and changes in the Companys business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of the Companys consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Companys operating environment evolves.
Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in reported results of operations; if material, the effects of changes in estimates are disclosed in the notes to the consolidated financial statements. Significant estimates and assumptions by management affect the carrying value of long-lived assets.
Segment Information
The Companys Chief Executive Officer (CEO), reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating its financial performance. Accordingly, the Company has determined that it operates in a single reportable segmenthealth services. Revenue earned by foreign operations outside of Spain were 5.2 million and 4.6 million for the three months period ended March 31, 2018 and 2017, respectivelty. Long-lived assets of foreign operations totaled 0.7 million as of March 31, 2018 (0.5 million as of December 31, 2017).
Revenue Recognition
On January 1, 2018, we adopted Accounting Standards (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) using the modified retrospective method. The adoption of ASU 2014-09 had no impact on our consolidated financial position, results of operations or cash flows.
The Company generates most of its revenue from clients on a contractually recurring, per-member-per-month, subscription access fee basis. Certain of the companys clients contracts generate revenues on a per case basis. Subscription access fees but also general medical and other specialty visit fees are paid by the Companys clients on behalf of their employees, dependents, policy holders, cardholders, beneficiaries or themselves.
The Company recognizes access fees on a monthly basis when the following criteria are met: (i) there is an executed subscription agreement, (ii) the member is eligible to the service, (iii) the services are performed, (iv) collection of the fees is reasonably assured and (v) the amount of fees to be paid by the Client is fixed and determinable. The Companys agreements generally have a term of one year with automatic renewal.
Subscription Access Revenue
Subscription access revenue recognition commences on the date that the Companys services are made available to the Client, which is considered the starting date, provided all the other criteria described above are met. Historically, the Company has not paid any material amounts related to performance guarantees.
The Companys contracts do not generally contain refund provisions for fees earned related to services performed. In the USA (Advance Medical Inc.) the Company has contracts where it commits to performance guarantees that could potentially diminish revenues. Historically, clients have never executed on them.
Cost of Revenue
Cost of revenue primarily consists of fees paid to the providers, costs incurred in connection with the Companys Provider network operations center activities, which include employee-related expenses (including salaries and benefits) as well as costs related to medical records, magnetic resonance imaging, medical lab tests, translation, postage and medical malpractice insurance.
Cost of revenue is driven primarily by the number of general medical visits, expert second opinions and other specialty visits completed in each period. Many of the elements of the cost of revenue are relatively variable and semi-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. While we currently expect to continue to enhance our Provider network operations center as well as our sales and technology capabilities to support business growth, we believe our increased investment in automation and integration capabilities and economies of scale in our Provider network operations center operating model, will position us to grow our revenue at a greater rate than our cost of revenue.
Technology and Development Expenses
Technology and development expenses include personnel and related expenses for software engineering, information technology infrastructure, security and compliance and product development. Technology and development expenses also include outsourced software engineering services, the costs of operating our on-demand technology infrastructure and licensed applications. Our technology and development expenses exclude certain allocations of occupancy expense as well as depreciation and amortization.
General and Administrative Expenses
General and administrative expenses include personnel and related expenses of professional fees incurred by our executive, finance, product development, operations and human resources departments. They also include most of the facilities costs including utilities and facilities maintenance. Our general and administrative expenses exclude any allocation of depreciation and amortization.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less from the date of purchase. The Companys cash and cash equivalents generally consist of investments in money market funds. Cash and cash equivalents are stated at fair value.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts. The allowance for doubtful accounts is based on the Companys assessment of the collectability of accounts. The Company regularly reviews the adequacy of the allowance for doubtful accounts by considering the collection history and age of each outstanding invoice of each customer to determine whether a specific allowance is appropriate. Accounts receivable deemed uncollectable are charged against the allowance for doubtful accounts when identified. The Company has not booked any allowance for doubtful accounts for the three months period ended March 31, 2008 and for the year ended December 31, 2017.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective asset as follows:
Computer equipment |
|
4 years |
Licenses and trademarks |
|
10 years |
Furniture and equipment |
|
10 years |
Other assets |
|
4 years |
Leasehold improvements |
|
Shorter of the lease term or the estimated useful lives of the improvements |
Maintenance and repairs are charged to expense as incurred while improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the consolidated statement of operations in the period realized.
Internal-Use Software
Internal-use software is included in intangible assets and is amortized on a straight-line basis over 4 years. For the Companys development costs related to its software development tools that enable its members and Providers to interact, the Company capitalizes costs incurred during the application development stage. Costs related to minor upgrades, minor enhancements and maintenance activities are expensed as incurred.
Foreign Currency
The functional currency for each of our foreign subsidiaries is the local currency. All assets and liabilities denominated in a foreign currency are translated into Euros at the exchange rate on the balance sheet date. Revenues and expenses are translated at the weighted average exchange rate during the period. Cumulative translation gains or losses are included in stockholders equity as a component of accumulated other comprehensive income (loss) . For the three months period ended March 31, 2018, realized foreign exchange gain was 0.1 million (0.3 million foreign exchange gain for the year ended December 31, 2017) and was recognized in the Companys unaudited consolidated statement of operations.
Income Taxes
The Company accounts for income taxes using the liability method, under which deferred tax assets and liabilities are determined based on the future tax consequences attributable to differences between the financial reporting carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards and net operating loss carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be in effect when the differences are expected to reverse.
The Company assesses the likelihood that deferred tax assets will be recovered from future taxable income, and a valuation allowance is established when necessary to reduce deferred tax assets to the amounts more likely than not expected to be realized.
The Company recognizes and measures uncertain tax positions using a two- step approach. The first step is to evaluate the tax position taken or expected to be taken by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Significant judgment is required to evaluate uncertain tax positions. The Company evaluates its uncertain tax positions on a regular basis. Its evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of audit and effective settlement of audit issues. The Companys policy is to include interest and penalties related to unrecognized tax benefits as a component of interest expense, net in the consolidated statements of operations.
H.R. 1, new tax legislation, commonly referred to as the Tax Cuts and Jobs Act, was enacted on December 22, 2017. Authoratative accounting guidance requires companies based in the US to recognize the effect of tax law changes in the period of enactment. The Tax Act included significant changes to the Internal Revenue Code of 1986, as amended, including amendments which significantly change the taxation of business entities. ASC 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment. Beginning with the quarter ended March 31, 2018, the Company are calculating tax expense in the US affiliate based on the newly enacted U.S. statutory rate of 21%.
Comprehensive Income / (Loss)
Comprehensive income / (loss) consists of net loss and cumulative translation gains or losses. Unrealized gains or losses are net of any reclassification adjustments for realized gains and losses included in the consolidated statements of operations.
Net income /(Loss) Per Share
Basic net income /(loss) per share is computed by dividing the net income /(loss) by the weighted-average number of shares of common stock of the Company outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of common stock and outstanding stock options, warrants and convertible notes, to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive.
Warranties and Indemnification
The Companys arrangements generally include certain provisions for indemnifying clients against liabilities if there is a breach of a Clients data or if the Companys service infringes a third partys intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnifications.
The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the persons service as a director or officer, including any action by the Company, arising out of that persons services as a director or officer or that persons services provided to any other company or enterprise at the Companys request. The Company maintains director and officer liability insurance coverage that would generally enable it to recover a portion of any future amounts paid. The Company may also be subject to indemnification obligations by law with respect to the actions of its employees under certain circumstances and in certain jurisdictions.
Advertising and Marketing Expenses
Advertising and marketing include all communications and campaigns to the Companys clients and members, digital advertising and related employees costs and are expensed as incurred. For the three months period ended March 31, 2018 and 2017, advertising expenses were 0.4 million and 0.5 million, respectively.
Sales Expenses
Sales expenses consist primarily of employee-related expenses, including salaries, benefits, commissions, employment taxes, travel and account management and sales support in addition to commissions paid to external brokers. Sales expenses exclude certain allocations of occupancy expense as well as depreciation and amortization.
Concentrations of Risk and Significant clients
The Companys financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and accounts receivable. Also the Company deposits its cash with several financial institutions in Spain and in foreign countries.The Companys short-term investments mostly are comprised of investments funds with maturity durations of one year or less.
Revenue from clients located in Spain for the three months period ended March 31, 2018 and 2017 were 9.8 million and 8.1 million, respectively. Revenue from clients located outside Spain for the three months period ended March 31, 2018 and 2017 were 5.2 million and 4.6 million, respectively.
One Client represented between 10%-13% of revenue for the three months period ended March 31, 2018 and for the year ended December 31, 2017.
No Client represented over 10% of accounts receivable at March 31, 2018 and December 31, 2017.
The Company has policies to ensure that sales are made to customers with an appropriate credit track record.
Note 3. Revenue
The Company generates most of its revenue from clients on a contractually recurring, per-member-per-month, subscription access fee basis. Certain of the companys clients contracts generate revenues on a per case basis. Subscription access fees but also general medical and other specialty visit fees are paid by the Companys clients on behalf of their employees, dependents, policy holders, cardholders, beneficiaries or themselves.
The Company recognizes revenue from contracts with customers based on the following five steps:
1) Identification of the contract, or contracts, with a customer
2) Identification of all performance obligations in the contract
3) Determination of the transaction price
4) Allocation of the transaction price to the performance obligations in the contract
5) Recognition of revenue as we satisfy a performance obligation
The Companys agreements generally have a minimum term of one year. The majority of clients renew their contracts following their first year of services. Revenues are recognized when the Company satisfies its performance obligation to stand ready to provide telehealth services which occurs when the Companys clients and members have access to and obtain control of the telehealth service. The Company generally bills for the telehealth services on a monthly basis with payment terms generally being 30 days and there are not significant differences between the timing of revenue recognition and billing. Consequently, the Company has determined that client contracts do not include a financing component. Revenue is recognized in an amount that reflects the consideration that is expected in exchange for the service and this may include a variable transaction price as the number of members may vary from the initial billing. Based on historical experience, the Company estimates this amount which is recorded as a component of revenue.
Subscription access revenue accounted for approximately 95% of our total revenue during both of the quarters ended March 31, 2018 and 2017.
The following table presents the Companys revenues disaggregated by revenue source (in thousands):
|
|
Quarters Ended March 31, |
| ||||
|
|
2018 |
|
2017 |
| ||
Subscription Access Fee |
|
|
|
|
| ||
Spain |
|
|
9,136 |
|
|
7,684 |
|
International Operations |
|
5,267 |
|
4,479 |
| ||
Visit Fee Revenue |
|
|
|
|
| ||
Other Specialty Visit (Expert Medical Opinion and other) |
|
621 |
|
593 |
| ||
Total |
|
|
15,024 |
|
|
12,756 |
|
As of March 31, 2018, accounts receivable related to virtual healthcare services, net of allowance for doubtful accounts, were 7.4 million (5.7 million as of December 31, 2017). The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on historical experience, specific account information and other currently available evidence. The Company has not booked any allowance for doubtful accounts for the three months period ended March 31, 2018 and for the year ended December 31, 2017
For certain virtual healthcare service products, payment is required for future months before the telehealth services access is delivered to the member. The Company records deferred revenue when cash payments are received in advance of the Companys performance obligation to provide telehealth service access. The net increase of 1.1 million in the deferred revenue balance for the three months ended March 31, 2018 is primarily driven by cash payments received or due in advance of satisfying the Companys performance obligations, offset by revenue recognized that were included in the deferred revenue balance at the beginning of the period. The Company anticipates that it will satisfy most of its performance obligation associated with the deferred revenue within the prospective fiscal year.
The Companys contracts do not generally contain refund provisions for fees earned related to services performed. In the USA (Advance Medical Inc.) the Company has contracts where it commits to performance guarantees that could potentially diminish revenues. Historically, clients have never executed on them. For the three months ended March 31, 2018, revenue recognized from performance obligations related to prior periods for the aforementioned changes in transaction price or client performance guarantees, was not material.
Note 4. Business acquistion
During the first quarter of the year 2018, the parent company has proceeded to the acquisition of the remaining 9.62% of participation in Advance Medical Inc. (USA) so at the date of preparation of the present unaudited condensed consolidated financial statements, the Parent company owns 100% of such participation. The consideration paid has totalled $2.1 million.
The increase in ownership of a subsidiary without resulting in a change in control, as described above, is accounted for as an equity transaction according to ASC 810-10-45-23 and thus not following the acquisition method of accounting. That is, the carrying amount of the noncontrolling interest is adjusted to reflect the controlling interests increased ownership interest in the subsidiarys net assets which remain unchanged. Any difference between the consideration paid by the parent to a noncontrolling interest holder and the adjustment to the carrying amount of the noncontrolling interest in the subsidiary is recognized directly in equity (booked under Other comprehensive income, see Condensed Consolidated Statements of Stockholders Equity) and attributable to the controlling interest.
Note 5. Property and Equipment, Net
Property and equipment, net, consist of the following (in thousands):
|
|
As of |
| ||||
|
|
March 31, |
|
December 31, |
| ||
|
|
2018 |
|
2017 |
| ||
Computer equipment and computer software |
|
|
1,844 |
|
1,697 |
| |
Furniture and equipment and leasehold improvements |
|
2,698 |
|
2,637 |
| ||
Construction in progress |
|
59 |
|
51 |
| ||
Total |
|
3,179 |
|
3,105 |
| ||
Accumulated depreciation |
|
(2,789 |
) |
(2,698 |
) | ||
Intangible assets, net |
|
|
1,892 |
|
|
1,766 |
|
Depreciation expense for the quarters ended March 31, 2018 and 2017 was 0.1 million and 0.1 million, respectively.
Note 6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
|
|
As of |
| ||||
|
|
March 31, |
|
December |
| ||
Professional, consulting, legal, marketing fees and others |
|
|
2,035 |
|
|
1,279 |
|
Deferred revenue |
|
1,635 |
|
484 |
| ||
Wages and salaries |
|
942 |
|
1,643 |
| ||
Taxes payable and other tax liabilities |
|
1,280 |
|
1,201 |
| ||
Total |
|
|
5,892 |
|
|
4,607 |
|
Operating Leases
The Company leases office space under non-cancelable operating leases in the Spain and various international locations. As of March 31, 2018 and December 31, 2017, the future minimum lease payments under non-cancelable operating leases are as follows (in thousands):
|
|
As of |
| ||||
|
|
March 31, |
|
December 31, |
| ||
|
|
|
|
|
| ||
Until 1 year |
|
|
212 |
|
|
212 |
|
Until 2 years |
|
165 |
|
165 |
| ||
Until 3 years |
|
165 |
|
165 |
| ||
Until 4 years |
|
168 |
|
168 |
| ||
Until 5 years |
|
169 |
|
169 |
| ||
All of the total future minimum lease payments relate to facilities space. The facility lease agreements generally provide for rental payments on a graduated basis and for options to renew, which could increase future minimum lease payments if exercised. The Company recognizes rent expense on a straight-line basis over the lease period and has accrued for rent expense incurred but not paid. Deferred rent represents the difference between actual operating lease payments due and straight-line rent expense. The excess is recorded as a deferred rent liability in the early periods of the lease, when cash payments are generally lower than straight-line rent expense, and are reduced in the later periods of the lease when payments begin to exceed the straight-line expense. The Company also accounts for leasehold improvement incentives within its deferred rent liability. Rent expense for the quarters ended March 31, 2018 and 2017 was 0.3 million and 0.25 million, respectively.
Note 7. Fair Value Measurements
The Company measures its financial assets and liabilities at fair value at each reporting period using a fair value hierarchy that requires it to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instruments classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:
Level 1Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2Include other inputs that are directly or indirectly observable in the marketplace.
Level 3Unobservable inputs that are supported by little or no market activity.
The Company measures its cash equivalents at fair value on a recurring basis. The Company classifies its cash equivalents and certain short term investments within Level 1 because they are valued using observable inputs that reflect quoted prices for identical assets in active markets and quoted prices directly in active markets.
The Company measures certain of its short-term investments at fair value on a recurring basis and classifies such as Level 1. They are valued using observable inputs that reflect quoted prices directly in active markets. These short-term investments corresponds to the fair value of the participation which the parent company holds in the DWS Fondeposito Plus class A investment fund and investments in short term deposits in financial entities.
Other non-current assets for an amount of 0.1 million as of March 31, 2018 and 0.5 million as of December 31, 2017, classified as Level 2, primarily corresponded to the outstanding amount of loans granted to some of the stockholders of the parent company after the sale, with effect from January 9, 2015 of the own shares of the parent company, which totaled 0.4 million. Mentioned loans accrued interest Euribor 3 months plus a 1.1 percentage points margin and expired January 9, 2025. On January 19, 2018, said loans have been fully paid.
The following tables present information about the Companys assets and liabilities that are measured at fair value on a recurring basis using the above input categories (in thousands):
|
|
March 31, 2018 |
| ||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
Cash and cash equivalents |
|
|
6,009 |
|
|
|
|
|
|
|
|
6,009 |
|
Short-term investments |
|
2422 |
|
|
|
|
|
2,422 |
| ||||
Other non-current assets |
|
|
|
|
|
103 |
|
|
|
|
|
103 |
|
|
|
December 31, 2017 |
| ||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
Cash and cash equivalents |
|
|
4,865 |
|
|
|
|
|
|
|
|
4,865 |
|
Short-term investments |
|
2,435 |
|
|
|
|
|
2,435 |
| ||||
Other non-current assets |
|
|
|
|
|
539 |
|
|
|
|
|
539 |
|
There were no transfers between fair value measurement levels during the three months period ended March 31, 2018 and the year ended December 31, 2017.
Note 8. Common Stock and Stockholders Equity
Capitalization
As of March 31, 2018, the Parent Companys share capital consisted of 52,736issued common shares (43,877 shares as of December 31, 2017), with 6.02 par value each. For each common share held, the stockholder has the right to one vote at the stockholders meetings.
Effective January 19, 2018 the authorized number of shares of the Companys common stock was increased from 43,877 to 52,736 shares. At the date of preparation of the present unaudited consolidated annual accounts, the companies involved directly or indirectly in a percentage equal to or greater than 10% in the share capital of the parent company is Advance Holdco Limited and Peralsi, S.L.
Additional paid-in capital
This reserve has no restrictions and is fully distributable.
Note 9. Income Taxes
The Companys tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items arising in that quarter.
In each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual tax rate changes, the Company makes a cumulative adjustment in that quarter.
The Companys provision for income taxes and effective tax rates were as follows:
|
|
Quarter ended |
| ||||
|
|
2018 |
|
2017 |
| ||
Provision for income taxes |
|
|
257 |
|
|
67 |
|
Income before income taxes |
|
1,275 |
|
24 |
| ||
Effective tax rate |
|
20.2 |
% |
35.8 |
% | ||
The corporate income tax rate applicable to the Group is predominantly 25%. The income tax rate applicable to the majority of income of foreign subsidiaries ranges from 25% to 35%.
The provision for income taxes differs from the amount computed by applying the statutory income tax rate to income before provision for income taxes.
As of March 31, 2018, the Company has a valuation allowance of approximately 0.7 million against most of the net deferred tax assets from the US affiliate, for which realization cannot be considered more likely than not at this time (0.7 million as of December 31, 2017). The Company has recognized net deferred tax assets for an amount of 0.3 million as of March 31, 2018 and December 31, 2017, respectively. The deferred tax liability is the result of the temporary difference resulting from the depreciation of the investment in subsidiaries, which is not tax deductible until its reversal.
The Company will continue to evaluate all evidence in all jurisdictions in future periods to determine if a change in valuation allowance against its deferred tax assets is warranted.
In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and past financial performance. The US affiliate remains in a significant cumulative loss position as of March 31, 2018 and, as a result, management believes a significant valuation allowance against all domestic net deferred tax assets as of March 31, 2018 and December 31, 2017. The valuation allowance against these deferred tax assets may require adjustment in the future based on changes in the mix of temporary differences, changes in tax laws, and operating performance. If and when the Company determines the valuation allowance should be released (i.e., reduced), the adjustment would result in a tax benefit reported in that periods Condensed Consolidated Statements of Operations, the effect of which would be an increase in reported net income. The amount of any such tax benefit associated with release of our valuation allowance in a particular reporting period may be material.
Note 10. Commitments and Contingencies
Legal Proceedings
There are no legal proceedings pending against or involving the Company that in managements opinion, based on the current known facts and circumstances, are expected to have a material adverse effect on the Companys condensed consolidated financial position, cash flow, or results from operations.
Note 11. Subsequent Events
On May 31, 2018, Teladoc, Inc. completed the acquisition of 100% of the shares of the Company. The aggregate purchase price of the acquisition was $353.1 million.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
On May 31, 2018, Teladoc, Inc. (Teladoc, the Company, our or we) completed the acquisition (the Acquisition) of all of the outstanding shares of Advance Medical-HealthCare Management Services, S.A. (Advance Medical). Advance Medical is a worldwide leader in telemedicine and expert medical opinion services. Partnered with more than 300 large, multinational employers and insurers across Europe, Asia, Latin America and the United States, Advance Medical has built an integrated portfolio of high quality telehealth and expert medical opinion solutions, including Global Care on Demand and the Virtual Medical Home. The aggregate purchase price for the Acquisition was $360.5 million, comprising approximately $291.9 million of cash and 1,344,387 shares of Teladocs common stock valued at approximately $68.6 million.
On May 8, 2018, the Company issued, at par value, $287.5 million aggregate principal amount of 1.375% convertible senior notes due 2025 (the 2025 Notes). The net proceeds to the Company from the offering were $279.1 million after deducting offering costs of approximately $8.4 million.
On July 14, 2017, the Company completed the acquisition of all of the outstanding shares of Best Doctors Holdings, Inc. (Best Doctors). Best Doctors is a leading expert medical consultation company and provides technology innovations and services to help employers, health plans and provider organizations to improve health outcomes for the most complex, critical and costly medical issues. The aggregate purchase price for the acquisition was $445.5 million, comprising approximately $379.3 million of cash, net of cash acquired of $13.7 million, and 1,855,078 shares of Teladocs common stock valued at approximately $66.2 million.
The following unaudited pro forma combined financial statements are based on our historical consolidated financial statements, Advance Medicals historical financial statements and Best Doctors historical financial statements as adjusted to give effect to the acquisitions and the issuance of the 2025 Notes, as discussed further below. The unaudited pro forma combined financial statements are derived from the following items: (1) our audited consolidated financial statements for the year ended December 31, 2017 included in our Annual Report on Form 10-K for the year ended December 31, 2017; (2) our unaudited consolidated financial statements as of and for the three months ended March 31, 2018 included in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018; (3) the unaudited consolidated financial statements of Best Doctors for the six months ended June 30, 2017 included in our Current Report on Form 8-K, filed with the Securities and Exchange Commission (the SEC) on November 28, 2017; (4) the audited consolidated financial statements of Advance Medical for the year ended December 31, 2017 included in our Current Report on Form 8-K/A, filed with the SEC on July 23, 2018; and (5) the unaudited interim condensed consolidated financial statements of Advance Medical as of and for the three months ended March 31, 2018 included in our Current Report on Form 8-K/A, filed with the SEC on July 23, 2018. For purposes of preparing the unaudited pro forma combined financial statements, Advance Medicals historical consolidated statement of operations for the year ended December 31, 2017 was translated from euros into U.S. dollars at an average rate for the period of $1.130068 : 1.00, Advance Medicals historical consolidated statement of operations for the three months ended March 31, 2018 was translated from euros into U.S. dollars at an average rate for the period of $1.228838 : 1.00 and Advance Medicals historical consolidated balance sheet as of March 31, 2018 was translated from euros into U.S. dollars at the closing rate on March 31, 2018 of $1.2324 : 1.00.
The unaudited pro forma combined statement of operations for the three months ended March 31, 2018 gives effect to the Acquisition and the issuance of the 2025 Notes as if each had occurred on January 1, 2017 and the unaudited pro forma combined statement of operations for the year ended December 31, 2017 gives effect to the acquisitions of Advance Medical and Best Doctors and the issuance of the 2025 Notes as if each had occurred on January 1, 2017. The unaudited pro forma combined balance sheet as of March 31, 2018 gives effect to the Acquisition and the issuance of the 2025 Notes as if each had occurred on March 31, 2018. No pro forma adjustments are necessary to the unaudited pro forma combined statement of operations for the three months ended March 31, 2018 or the unaudited pro forma combined balance sheet as of March 31, 2018 to reflect the acquisition of Best Doctors as this acquisition is fully reflected in our historical financial statements as of and for the three months ended March 31, 2018. The unaudited pro forma combined financial statements do not include the realization of any future cost savings or integration changes that are expected to be achieved.
The pro forma adjustments are based on the best information available and certain assumptions that management believes are reasonable under the circumstances. The assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with this unaudited pro forma combined financial information. The unaudited pro forma combined financial statements are presented for illustrative and informative purposes only and are not intended to represent or be indicative of what our results of operations would have been had the transactions actually occurred on the dates indicated. Our, Advance Medicals and Best Doctors historical audited and unaudited financial statements described above have been adjusted in the unaudited pro forma combined financial statements to give effect to events that are (1) directly attributable to the transactions, as applicable, (2) factually supportable and (3) with respect to the unaudited pro forma combined statements of operations, expected to have a continuing impact on us. The unaudited pro forma combined statements of operations do not reflect any non-recurring charges directly related to the acquisitions of Advance Medical and Best Doctors that have already been incurred by us. These non-recurring charges are further described in the accompanying notes to the unaudited pro forma combined financial statements and include transaction-related costs such as financial advisory, legal and regulatory filing fees and all related financing fees. The unaudited pro forma combined financial statements should be read in conjunction with the accompanying notes to the unaudited pro forma combined financial statements.
The unaudited pro forma combined financial information has been prepared using the acquisition method of accounting with respect to the Acquisition, with us considered the acquirer of Advance Medical. Under the acquisition method of accounting, the purchase price will be allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair market values, with any excess purchase price allocated to goodwill. The purchase price allocation was based on estimates of the fair market value of the tangible and intangible assets and liabilities of Advance Medical, as described further in the notes to our unaudited pro forma combined financial information below. As of the date of the Current Report to which this unaudited pro forma combined financial information is attached as an exhibit, we only have preliminary estimates of the fair market values and the related allocations of the purchase price. In arriving at such estimates, we have considered the preliminary appraisals of independent consultants, which were based on a preliminary and limited review of the assets and liabilities of Advance Medical acquired by us in the Acquisition. We expect to complete the purchase price allocation after considering the fair market value of Advance Medicals assets and liabilities at the level of detail necessary to finalize the purchase price allocation. The final purchase price allocation will be based, in part, on third-party appraisals and may be different than that reflected in the pro forma purchase price allocation presented herein, and any such differences may be material.
The unaudited pro forma combined financial statements should be read in conjunction with our historical financial statements and related managements discussion and analysis of financial condition and results of operations, which are included in our Annual Report on Form 10-K for the year ended December 31, 2017 and Quarterly Report on Form 10-Q for the three months ended March 31, 2018, Best Doctors historical financial statements, which are included in our Report on Form 8-K, filed with the SEC on November 28, 2017, and Advance Medicals historical financial statements, which are included in our Current Report on Form 8-K/A, filed with the SEC on July 23, 2018.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2018
(in thousands, except share and per share information)
|
|
For the Three Months Ended March 31, 2018 |
| |||||||||||||
|
|
Advance |
|
|
|
Advance |
|
Pro Forma |
|
|
| |||||
|
|
Medical(1) |
|
Teladoc |
|
Medical(2) |
|
Adjustments |
|
Pro Forma |
| |||||
|
|
For Reference |
|
|
|
|
|
|
|
|
| |||||
Revenue |
|
|
15,024 |
|
$ |
89, 644 |
|
$ |
18,463 |
|
$ |
|
|
$ |
108,107 |
|
Cost of revenue |
|
9,541 |
|
26,856 |
|
11,725 |
|
|
|
38,581 |
| |||||
Gross profit |
|
5,483 |
|
62,788 |
|
6,738 |
|
|
|
69,526 |
| |||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||
Advertising and marketing |
|
386 |
|
20,325 |
|
474 |
|
|
|
20,799 |
| |||||
Sales |
|
640 |
|
13,783 |
|
787 |
|
|
|
14,570 |
| |||||
Technology and development |
|
682 |
|
12,904 |
|
838 |
|
|
|
13,742 |
| |||||
Legal |
|
|
|
481 |
|
|
|
|
|
481 |
| |||||
Regulatory |
|
|
|
564 |
|
|
|
|
|
564 |
| |||||
Acquisition and integration related costs |
|
|
|
1,569 |
|
|
|
(1,569 |
)(a) |
|
| |||||
General and administrative |
|
2,531 |
|
24,001 |
|
3,110 |
|
103 |
(f) |
27,214 |
| |||||
Depreciation and amortization |
|
124 |
|
8,253 |
|
152 |
|
2,262 |
(b) |
10,667 |
| |||||
Income (loss) from operations |
|
1,120 |
|
(19,092 |
) |
1,377 |
|
(796 |
) |
(18,511 |
) | |||||
Interest expense, net |
|
10 |
|
4,873 |
|
13 |
|
3,925 |
(c)(d) |
8,811 |
| |||||
Foreign currency transaction loss |
|
84 |
|
|
|
103 |
|
(103 |
)(f) |
|
| |||||
Net income (loss) before taxes |
|
1,026 |
|
(23,965 |
) |
1,261 |
|
(4,618 |
) |
(27,322 |
) | |||||
Income tax (benefit) provision |
|
195 |
|
(103 |
) |
239 |
|
|
|
136 |
| |||||
Net income (loss) |
|
|
831 |
|
$ |
(23,862 |
) |
$ |
1,022 |
|
$ |
(4,618 |
) |
$ |
(27,458 |
) |
Net loss per share, basic and diluted |
|
|
|
$ |
(0.39 |
) |
|
|
|
|
$ |
(0.43 |
) | |||
Weighted-average shares used to compute basic and diluted net loss per share |
|
|
|
61,797,762 |
|
|
|
1,344,387 |
(e) |
63,142,149 |
|
(1) Advance Medical is incorporated in Spain and the functional currency is in euros as exhibited.
(2) The statement of operations was translated from euros into U.S. dollars at an average rate for the period of $1.228838 : 1.00.
See accompanying notes to unaudited pro forma combined financial information.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2017
(in thousands, except share and per share information)
|
|
|
|
For the Year Ended December 31, 2017 |
| |||||||||||||||||
|
|
Advance |
|
|
|
Advance |
|
Best |
|
|
|
Pro Forma |
|
|
| |||||||
|
|
Medical(1) |
|
Teladoc |
|
Medical(2) |
|
Doctors(3) |
|
Reclassifications |
|
Adjustments |
|
Pro Forma |
| |||||||
|
|
For |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Revenue |
|
|
55,166 |
|
$ |
233,279 |
|
$ |
62,341 |
|
$ |
52,966 |
|
$ |
|
|
$ |
|
|
$ |
348,586 |
|
Cost of revenue |
|
35,460 |
|
61,623 |
|
40,072 |
|
17,192 |
|
|
|
|
|
118,887 |
| |||||||
Gross profit |
|
19,706 |
|
171,656 |
|
22,269 |
|
35,774 |
|
|
|
|
|
229,699 |
| |||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Advertising and marketing |
|
879 |
|
57,663 |
|
993 |
|
|
|
2,083 |
(f) |
|
|
60,739 |
| |||||||
Sales |
|
2,499 |
|
37,984 |
|
2,824 |
|
|
|
10,035 |
(f) |
|
|
50,843 |
| |||||||
Technology and development |
|
1,830 |
|
34,459 |
|
2,068 |
|
|
|
4,087 |
(f) |
|
|
40,614 |
| |||||||
Legal |
|
|
|
1,485 |
|
|
|
|
|
157 |
(f) |
|
|
1,642 |
| |||||||
Regulatory |
|
|
|
3,387 |
|
|
|
|
|
|
|
|
|
3,387 |
| |||||||
Acquisition related costs |
|
|
|
13,196 |
|
|
|
|
|
|
|
(13,196 |
)(a) |
|
| |||||||
General and administrative |
|
12,671 |
|
79,781 |
|
14,319 |
|
|
|
13,996 |
(f) |
|
|
108,096 |
| |||||||
Selling, general and administrative |
|
|
|
|
|
|
|
29,390 |
|
(29,390 |
)(f) |
|
|
|
| |||||||
Depreciation and amortization |
|
507 |
|
19,095 |
|
573 |
|
1,815 |
|
|
|
15,989 |
(b) |
37,472 |
| |||||||
Income (loss) from operations |
|
1,320 |
|
(75,394 |
) |
1,492 |
|
4,569 |
|
(968 |
) |
(2,793 |
) |
(73,094 |
) | |||||||
Amortization of warrants and loss on extinguishment of debt |
|
|
|
14,122 |
|
|
|
|
|
|
|
(14,122 |
)(g) |
|
| |||||||
Foreign currency transaction loss |
|
296 |
|
|
|
335 |
|
499 |
|
(834 |
)(f) |
|
|
|
| |||||||
Gain on sale |
|
|
|
|
|
|
|
(2,369 |
) |
|
|
2,369 |
(h) |
|
| |||||||
Interest expense (income), net |
|
24 |
|
17,491 |
|
27 |
|
13,644 |
|
|
|
2,745 |
(c)(d) |
33,907 |
| |||||||
Other expense, net |
|
|
|
|
|
|
|
2,508 |
|
(134 |
)(f) |
(2,374 |
)(i) |
|
| |||||||
Net income (loss) before taxes |
|
1,000 |
|
(107,007 |
) |
1,130 |
|
(9,713 |
) |
|
|
8,589 |
|
(107,001 |
) | |||||||
Income tax (benefit) provision |
|
783 |
|
(225 |
) |
885 |
|
70 |
|
|
|
|
|
730 |
| |||||||
Net income (loss) |
|
|
217 |
|
$ |
(106,782 |
) |
$ |
245 |
|
$ |
(9,783 |
) |
$ |
|
|
$ |
8,589 |
|
$ |
(107,731 |
) |
Net loss per share, basic and diluted |
|
|
|
$ |
(1.93 |
) |
|
|
|
|
|
|
|
|
$ |
(1.87 |
) | |||||
Weighted-average shares used to compute basic and diluted net loss per share |
|
|
|
55,427,460 |
|
|
|
|
|
|
|
2,330,374 |
(j) |
57,757,834 |
|
(1) Advance Medical is incorporated in Spain and the functional currency is in euros as exhibited.
(2) The statement of operations was translated from euros into U.S. dollars at an average rate for the period of $1.130068 : 1.00.
(3) Includes results from a business disposed of by Best Doctors in January 2017, of which revenue and net income were $387 and $223, respectively.
See accompanying notes to unaudited pro forma combined financial information.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 2018
(in thousands)
|
|
|
|
As of March 31, 2018 |
| |||||||||||
|
|
Advance |
|
|
|
Advance |
|
Pro Forma |
|
|
| |||||
|
|
Medical(1) |
|
Teladoc |
|
Medical(2) |
|
Adjustments |
|
Pro Forma |
| |||||
|
|
For |
|
|
|
|
|
|
|
|
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
|
|
6,009 |
|
$ |
65,179 |
|
$ |
7,405 |
|
$ |
(12,805 |
)(k) |
$ |
59,779 |
|
Short-term investments |
|
2,422 |
|
54,555 |
|
2,985 |
|
|
|
57,540 |
| |||||
Accounts receivable, net |
|
7,396 |
|
30,701 |
|
9,115 |
|
|
|
39,816 |
| |||||
Prepaid expenses and other current assets |
|
523 |
|
6,497 |
|
645 |
|
|
|
7,142 |
| |||||
Total current assets |
|
16,350 |
|
156,932 |
|
20,150 |
|
(12,805 |
) |
164,277 |
| |||||
Property and equipment, net |
|
1,892 |
|
7,995 |
|
2,331 |
|
(617 |
)(f) |
9,709 |
| |||||
Goodwill |
|
|
|
498,277 |
|
|
|
257,855 |
(l) |
756,132 |
| |||||
Intangible assets, net |
|
|
|
153,493 |
|
|
|
119,310 |
(b,f) |
272,803 |
| |||||
Deferred income tax assets |
|
362 |
|
|
|
446 |
|
(446 |
)(f) |
|
| |||||
Other assets |
|
103 |
|
827 |
|
127 |
|
446 |
(f) |
1,400 |
| |||||
Total assets |
|
|
18,707 |
|
$ |
817,524 |
|
$ |
23,054 |
|
$ |
363,743 |
|
$ |
1,204,321 |
|
Liabilities and stockholders equity |
|
|
|
|
|
|
|
|
|
|
| |||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts payable |
|
|
529 |
|
$ |
3,290 |
|
$ |
652 |
|
$ |
|
|
$ |
3,942 |
|
Accrued expenses and other current liabilities |
|
6,141 |
|
21,498 |
|
7,568 |
|
|
|
29,066 |
| |||||
Accrued compensation |
|
|
|
13,024 |
|
|
|
|
|
13,024 |
| |||||
Total current liabilities |
|
6,670 |
|
37,812 |
|
8,220 |
|
|
|
46,032 |
| |||||
Other liabilities |
|
|
|
6,154 |
|
|
|
|
|
6,154 |
| |||||
Deferred taxes |
|
163 |
|
12,258 |
|
201 |
|
30,437 |
(m) |
42,896 |
| |||||
Convertible senior notes, net |
|
|
|
210,432 |
|
|
|
|
|
210,432 |
| |||||
2025 Convertible senior notes, net |
|
|
|
|
|
|
|
187,744 |
(n) |
187,744 |
| |||||
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
| |||||
Common stock, par value |
|
317 |
|
62 |
|
391 |
|
(390 |
)(o) |
63 |
| |||||
Additional paid-in capital |
|
4,534 |
|
882,804 |
|
5,587 |
|
154,367 |
(p) |
1,042,758 |
| |||||
Accumulated deficit |
|
|
|
(335,439 |
) |
|
|
|
|
(335,439 |
) | |||||
Non-controlling interest |
|
195 |
|
|
|
240 |
|
|
|
240 |
| |||||
Accumulated other comprehensive income |
|
6,828 |
|
3,441 |
|
8,415 |
|
(8,415 |
)(q) |
3,441 |
| |||||
Total stockholders equity |
|
11,874 |
|
550,868 |
|
14,633 |
|
145,562 |
|
711,063 |
| |||||
Total liabilities and stockholders equity |
|
|
18,707 |
|
$ |
817,524 |
|
$ |
23,054 |
|
$ |
363,743 |
|
$ |
1,204,321 |
|
(1) Advance Medical is incorporated in Spain and the functional currency is in euros as exhibited.
(2) The statement of operations was translated from euros into U.S. dollars at the closing rate on March 31, 2018 of $1.2324 : 1.00.
See accompanying notes to unaudited pro forma combined financial information.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(in thousands, except share and per share information)
Note 1 Basis of Presentation
The historical consolidated financial statements have been adjusted in the pro forma combined financial statements to give effect to pro forma events that are directly attributable to the business combinations, factually supportable and with respect to the pro forma combined statements of operations and expected to have a continuing impact on the combined results following the business combination, as well as to give effect to the issuance of the 2025 Notes.
The business combinations will be accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. As the acquirer for accounting purposes, the Company has estimated the fair value of Advance Medicals and Best Doctors assets acquired and liabilities assumed and conformed the accounting policies of Advance Medical and Best Doctors to our own accounting policies.
The pro forma combined financial statements do not necessarily reflect what the combined companys financial condition or results of operations would have been had the acquisitions or the issuance of the 2025 Notes occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
Note 2 Financing Transactions
On May 8, 2018, the Company issued, at par value, $287.5 million aggregate principal amount of 1.375% convertible senior notes due 2025. The 2025 Notes bear cash interest at a rate of 1.375% per year, payable semi-annually in arrears on May 15 and November 15 of each year, beginning on November 15, 2018. The 2025 Notes will mature on May 15, 2025, unless earlier converted, redeemed or repurchased. The net proceeds to the Company from the offering were $279.1 million after deducting offering costs of approximately $8.4 million. In accounting for the issuance of the 2025 Notes, the Company separated the 2025 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2025 Notes as a whole. The excess of the principal amount of the liability component over its carrying amount, referred to as the debt discount, is amortized from the issuance date to May 15, 2025 (the first date on which the Company may be required to repurchase the 2025 Notes at the option of the holder). The equity component related to the 2025 Notes is $91.4 million, net of debt issuance costs, and is recorded in additional paid-in capital in the unaudited pro forma combined balance sheet.
On June 27, 2017, the Company issued, at par value, $275.0 million aggregate principal amount of 3% convertible senior notes due 2022 (the 2022 Notes). The 2022 Notes bear cash interest at a rate of 3.00% per year, payable semi-annually in arrears on June 15 and December 15 of each year, with the first payment having been made on December 15, 2017. The 2022 Notes will mature on December 15, 2022, unless earlier converted, redeemed or repurchased. The net proceeds to the Company from the offering were $263.7 million after deducting offering costs of approximately $11.3 million. In accounting for the issuance of the 2022 Notes, the Company separated the 2022 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2022 Notes as a whole. The excess of the principal amount of the liability component over its carrying amount, referred to as the debt discount, is amortized from the issuance date to June 15, 2022 (the first date on which the Company may be required to repurchase the 2022 Notes at the option of the holder). The equity component related to the 2022 Notes is $62.4 million, net of debt issuance costs, and is recorded in additional paid-in capital in the unaudited pro forma combined balance sheet.
Concurrently with the acquisition of Best Doctors, the Company entered into a $175 million senior secured first lien term loan facility (the Term Loan Facility) and a $10 million senior secured revolving credit facility (the Revolving Credit Facility and, together with the Term Loan Facility, the Senior Secured Credit Facilities). Prior to its repayment, the Term Loan Facility carried interest at a rate of 7.25% above fixed 90-days LIBOR of 1.24% (or 8.49%)
and was set to mature in July 2022. Interest payments were payable monthly in arrears. The Revolving Credit Facility carries interest at a rate of 7.25% above fixed 90-days LIBOR of 1.24% and matures in July 2020. The Company is also required to pay a commitment fee on the average daily unused portion of the Revolving Credit Facility at 0.50%. The Company incurred expenses of $8.3 million in conjunction with obtaining the Senior Secured Credit Facilities. In December 2017, the Company used the proceeds from an equity offering to repay and extinguish the Term Loan Facility, including early termination and final deferred origination fees of $12.6 million, and recorded a one-time charge reflected in the consolidated statements of operations as amortization of warrants and loss on extinguishment of debt.
On July 13, 2017, the Company repaid and extinguished all the outstanding amounts under both the Companys previous line of credit facility (the SVB Line of Credit Facility) and mezzanine term loan facility (the Mezzanine Term Loan) of $17.5 million and $25 million, respectively, including early termination and final deferred origination fees of $1.5 million, and recorded a one-time charge reflected in the consolidated statements of operations as amortization of warrants and loss on extinguishment of debt.
Note 3 Preliminary Purchase Price Allocation
The Company has performed a preliminary valuation analysis of the fair market value of Advance Medicals assets and liabilities. The following table summarizes the allocation of the preliminary purchase price:
Tangible assets acquired: |
|
|
| |
Current assets |
|
$ |
20,150 |
|
Property and equipment, net |
|
1,714 |
| |
Other |
|
573 |
| |
Total |
|
22,437 |
| |
Value assigned to identifiable intangible assets acquired |
|
119,310 |
| |
Liabilities assumed |
|
(39,098 |
) | |
Total assets acquired in excess of liabilities assumed |
|
102,649 |
| |
Goodwill |
|
257,855 |
| |
Total purchase price |
|
$ |
360,504 |
|
This preliminary purchase price allocation has been used to prepare pro forma adjustments in the unaudited pro forma combined balance sheet and statements of operations. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations including a more comprehensive review. The final allocation may differ materially from the preliminary allocation used in the pro forma adjustments.
The Company has performed a valuation analysis of the fair market value of Best Doctors assets and liabilities. The following table summarizes the allocation of the final purchase price:
Tangible assets acquired: |
|
|
| |
Current assets |
|
$ |
11,205 |
|
Property and equipment, net |
|
2,650 |
| |
Other |
|
2,483 |
| |
Total |
|
16,338 |
| |
Value assigned to identifiable intangible assets acquired |
|
146,210 |
| |
Liabilities assumed |
|
(24,530 |
) | |
Total assets acquired in excess of liabilities assumed |
|
138,018 |
| |
Goodwill |
|
307,517 |
| |
Total purchase price |
|
$ |
445,535 |
|
This final purchase price allocation has been used to prepare pro forma adjustments in the pro forma statement of operations.
Note 4 Pro Forma Adjustments
The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma combined financial information:
(a) Represents the elimination of nonrecurring transaction costs incurred of $1,569 and $13,196 principally due to transaction costs for bankers, other professional fees and integration costs that are directly related to the acquisitions of Advance Medical and Best Doctors, respectively.
(b) As part of the preliminary valuation analysis of Advance Medical, the Company identified intangible assets, including client lists, trademark, non-compete agreements, favorable leases and internal-use software. These amounts represent the acquired intangible assets and the estimated additional amortization.
The following table summarizes the estimated fair values of Advance Medicals identifiable intangible assets and their estimated useful lives and the associated amortization for the three months ended March 31, 2018 and for the year ended December 31, 2017:
|
|
Estimated |
|
Estimated |
|
Three Months |
|
Year Ended |
| |||
Customer relationships |
|
$ |
100,760 |
|
20 years |
|
$ |
1,712 |
|
$ |
6,465 |
|
Trademark |
|
16,190 |
|
15 years |
|
284 |
|
1,044 |
| |||
Non-compete |
|
1,540 |
|
3 years |
|
135 |
|
497 |
| |||
Favorable leases |
|
203 |
|
1.5 years |
|
28 |
|
135 |
| |||
Internal-use software |
|
617 |
|
1.5 years |
|
103 |
|
411 |
| |||
Total |
|
$ |
119,310 |
|
|
|
$ |
2,262 |
|
$ |
8,552 |
|
These preliminary estimates of fair value and estimated useful lives may differ from final amounts the Company will calculate after completing a detailed valuation analysis, and the difference could have a material impact on the accompanying unaudited pro forma combined financial statements.
Additionally, the Company identified Best Doctors intangible assets, including client lists, trademark and technology. The following table summarizes the fair values and their useful lives and the associated amortization for the period prior to the acquisition of Best Doctors from January 1, 2017 through July 13, 2017:
|
|
Estimated |
|
Estimated |
|
Year Ended |
| ||
Customer relationships |
|
$ |
112,810 |
|
10 years |
|
$ |
4,891 |
|
Trademark |
|
24,920 |
|
15 years |
|
878 |
| ||
Internal-use software |
|
8,480 |
|
2 years |
|
2,296 |
| ||
|
|
146,210 |
|
|
|
8,065 |
| ||
Pre-acquisition amortization expense |
|
¾ |
|
|
|
(628 |
) | ||
Total |
|
$ |
146,210 |
|
|
|
$ |
7,437 |
|
(c) Reflects (i) the elimination of interest expense and amortization of debt issuance costs associated with the Companys SVB Line of Credit Facility and Mezzanine Term Loan of $8,382 for the year ended December 31, 2017, (ii) the estimated interest expense on debt incurred, amortization of debt issuance cost and fair value of
the equity component of the 2022 Notes of $10,022 for the year ended December 31, 2017 and (iii) the estimated interest expense on debt incurred, amortization of debt issuance cost and fair value of the equity component of the 2025 Notes of $3,937 and $14,776 for the three months ended March 31, 2018 and the year ended December 31, 2017, respectively. An increase or decrease of 0.25% per annum related to the interest rate associated with the debt incurred would increase or decrease pro forma interest expense by approximately $180 for the three months ended March 31, 2018 and $719 for the year ended December 31, 2017.
(d) Reflects (i) the elimination of interest expense associated with Best Doctors existing credit facilities and long-term promissory notes and other debt in the aggregate amount of $13,644 for the year ended December 31, 2017 and (ii) the elimination of interest expense associated with Advance Medicals debt in the aggregate amount of $116 and $27 for the three months ended March 31, 2018 and for the year ended December 31, 2017, respectively.
(e) Reflects the issuance of 1,344,387 shares of Teladoc common stock in connection with the Acquisition.
(f) Reflects the reclassification of certain components of the statements of operations and balance sheet to conform to the financial information of the combined companies.
(g) Reflects the elimination of loss on extinguishment of debt for the Company upon early termination of all the outstanding amounts under both of the SVB Line of Credit Facility and Mezzanine Term Loan.
(h) Reflects the elimination of gain on sale from a business disposed of by Best Doctors in January 2017.
(i) Represents the elimination of the change in fair value of the warrants issued in 2016 associated with Best Doctors long-term promissory notes of $2,374 for the year ended December 31, 2017.
(j) Reflects (i) the increase in weighted average shares of 1,344,387 shares of Teladoc common stock in connection with the Acquisition and (ii) the increase in weighted average shares of 985,987 in connection with the issuance of 1,855,078 shares of Teladoc common stock for the acquisition of Best Doctors.
(k) Represents the preliminary cash purchase price for the Acquisition of $291,941, less proceeds from the issuance of the 2025 Notes of $279,136, net of fees.
(l) Represents the preliminary net increase to goodwill as a result of the Acquisition.
(m) Represents the preliminary net increase to deferred tax liability as a result of the Acquisition.
(n) Reflects the issuance of the 2025 Notes, net of debt issuance costs of $8,364, and the fair value of the equity component of the 2025 Notes of $91,392.
(o) Reflects the issuance of 1,344,387 shares of Teladoc common stock of $1 in connection with the Acquisition, less $391 of the par value of Advance Medical common stock eliminated in connection with the Acquisition.
(p) Reflects the issuance of 1,344,387 shares of Teladoc common stock of $68,563 in connection with the Acquisition, less $5,587 of additional paid-in capital of Advance Medical eliminated in connection with the Acquisition and the fair value of the equity component of the 2025 Notes of $91,392.
(q) Reflects the elimination of Advance Medicals other comprehensive income.