Teladoc Health Inc
For the period ended Dec 31, 2024. Filed Feb 27, 2025.
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FY2024 · Filed Feb 27, 2025
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Report of Independent Registered Public Accounting Firm (PCAOB ID:
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Teladoc Health, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Teladoc Health, Inc. (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations and other comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 27, 2025 expressed an unqualified opinion thereon.
Adoption of ASU No. 2020-06
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for Convertible Senior Notes in 2022 due to the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Update 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| Capitalized software development costs | |
| Description of the Matter | At December 31, 2024, the Company’s capitalized software development costs were $362 million. As described in Note 2 and 8 of the consolidated financial statements, the Company capitalizes certain software development costs related to its software development tools that enable its members and providers to interact. Management determines the amount of internal-use software costs to be capitalized based on the amount of time spent by internal developers and vendors on projects in the application stage of development. There is judgment involved in estimating time incurred in the application development stage. |
|---|---|
| Auditing capitalized internal-use software development costs required a higher degree of judgement and effort involved in evaluating management’s judgement related to the amount of time incurred by developers on each project. | |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s capitalization of software development costs process. For example, we tested controls over the Company’s process to review the time incurred by developers on each project. |
| To test the Company’s capitalization of software development costs, we performed audit procedures that included, among others, inspecting underlying documentation to evaluate whether the time was capitalizable under the applicable accounting standards for a sample of projects. For these projects, we also inquired of technology and development management, project managers, and developers regarding the objective and nature of the projects and inquired with software developers regarding their time spent on each project and the nature of their tasks performed for the project. We also inspected underlying documentation to evaluate the nature of the work of the software developers. For external vendor costs, we also obtained a sample of vendor contracts and invoices to review the time incurred to perform development activities. | |
| Valuation of goodwill for the BetterHelp reporting unit | |
| Description of the Matter | At December 31, 2024, the Company’s consolidated goodwill was $283.2 million, all of which is recorded within the BetterHelp reporting unit. As discussed in Notes 2 and 6 of the consolidated financial statements, goodwill is not amortized but is tested for impairment at the reporting unit level annually on October 1 or more frequently if events or changes in circumstances indicate that it is more likely than not to be impaired. As a result of sustained decreases in the Company’s publicly quoted share price and market capitalization as well as changes in the operating results of the BetterHelp reporting unit, the Company conducted an interim test of its goodwill at June 30, 2024. For the twelve months ended December 31, 2024, the Company recognized $790 million of non-deductible, non-cash goodwill impairment charges. |
| Auditing management’s goodwill impairment test for the Company’s BetterHelp reporting unit was complex and highly judgmental due to the significant uncertainty in determining the fair value of the reporting unit. In particular, the fair value estimate was sensitive to changes in significant assumptions such as the projected revenue, EBITDA margin growth rates, terminal growth rate, and discount rate. These assumptions are affected by expectations about future market or economic conditions and the impact of planned business and operation strategies. | |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment assessment process. For example, we tested controls over the Company’s forecasting process as well as controls over management's review of the valuation model and significant assumptions used. |
To test the estimated fair value of the Company’s reporting unit, we performed audit procedures that included, among others, assessing the valuation methodologies used, testing the significant assumptions described above and testing the completeness and accuracy of the underlying data the Company used in its analyses. For example, we compared the projected revenue, EBITDA margin growth rates, and terminal growth rate used in the valuations to historical results, forecasted industry and economic trends, analyst reports and peer company information, where available. We also evaluated management’s ability to accurately forecast by comparing actual results to historical forecasts. We involved our valuation specialists to assist in our evaluation of the Company’s determined weighted average cost of capital (WACC), which was used to determine the discount rate applied to management’s cash flow projections, including performing a comparative calculation of the WACC. We also performed sensitivity analyses of significant assumptions to evaluate changes in the fair value that would result from changes in the assumptions. In addition, we tested management’s reconciliation of the fair value of the reporting units to the market capitalization of the Company.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2014.
New York, New York
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