Dive Brief:

• Teladoc Health recorded a $6.6 billion impairment charge in the first quarter, reflecting the waning market value of its acquisition of chronic care company Livongo inked two years ago.
• Teladoc, the largest virtual care company in the U.S., bought Livongo for $18.5 billion in cash and stock late 2020 in the biggest digital health deal to date. However, the merger has struggled, resulting in the large goodwill impairment charge for the Purchase, New York-based vendor. Teladoc's stock had plummeted 45% by early trade Thursday following the news.
• The charge drove Teladoc's net loss up to $6.7 billion in the quarter, a record for the company. That's more than 33 times bigger than its loss of about $200 million during the same time last year; and about 16 times its full year 2021 net loss of $429 million.

Dive Insight:

Acquiring Livongo was key in Teladoc's strategy to evolve into a virtual multi-specialty clinic. However, the marriage — despite spurring consolidation in health tech and pushing payers to adopt more digital health benefits — has faced difficulty in the past two years.

All but one member of Livongo's senior management team had departed the combined company by November, and employees had difficultly achieving performance metrics, Insider reported at the time. Analysts have also pointed to weak enrollment numbers for Livongo's chronic care programs, which have missed expectations in the last few quarters, and that expansion has been limited by technical challenges of scaling to different regions.

Teladoc warned investors it was likely to record a large charge in the quarter in a 10-K filed with the SEC late February.

The filing estimated the goodwill impairment charge could range from $800 million to $4 billion, though Wednesday's total is notably bigger, at $6.6 billion.

Goodwill represents extra money that a company pays to acquire another, beyond its value on paper. The metric takes into account factors like intellectual property and brand recognition. Impairment occurs when the acquired asset no longer generates the financial results that were expected of them at the time of purchase.

The non-cash charge does not impact Teladoc's balance sheet, cash flow or liquidity position, and will not impact the day-to-day operations of the business, according to management.

The company noted that growth stocks have seen a contraction in market multiples across various sectors and increasing interest rates, which triggered a recalculation of its goodwill.

Teladoc's stock price has slumped since its peak in February last year, amid market volatility and investor misgivings about the long-term future of virtual care.

Teladoc itemized its quarterly goodwill as $7.9 billion on its asset sheet, down from $14.5 billion same time last year.

As a result, its total assets fell from $17.7 billion to $11.1 billion.

In the quarter ended March 31, Teladoc's revenue was up 25% year over year to more than $565 million. Visits jumped 35% to 4.5 million.

Despite the increase in overall visits, the vendor continues to report low utilization among members in its subscription plans, which are usually paid for by employers and health plans. About 23% of Teladoc's U.S. subscription members had a virtual visit during the quarter, though the total was up from 18% in the prior-year period.

Teladoc ended the quarter with 54.3 million members in the U.S., and more than 730,000 members enrolled in Livongo's chronic care programs.

Teladoc lowered its 2022 guidance following the results. The telehealth giant expects to bring in between $2.4 billion and $2.5 billion in revenue this year, down from its prior estimate of between $2.55 billion and $2.65 billion. The decrease reflects higher advertising costs in direct-to-consumer mental health markets — a key growth driver for the vendor — and a longer sales cycle in the chronic condition market, according to CEO Jason Gorevic.

Teladoc estimates its 2022 net loss will be between $6.9 billion and $7 billion.

The vendor's stock took a sizeable hit following the earnings release, opening Thursday at $31.52 a share. By comparison, at market open Wednesday, it was trading at $56.96 a share.

The negative sentiment reflects the Livongo impairment charge along with the lower guidance, and could have a "flow-through impact on the entire digital healthcare sector," weighing down similar stocks of peers like Amwell late in the week, SVB Leerink analyst Stephanie Davis said.

Teladoc is remaining focused on growing its multiproduct and chronic care offerings. In the earnings release, Gorevic said Teladoc had added multiple clients onto its virtual primary care product, Primary360, and its stepped-care chronic condition programs in the quarter.

When it bought Livongo, Teladoc said it expected the deal to generate roughly $500 million in revenue by 2025, a goal the company said it's optimistic it will reach.