News of the Week (7/19 - 7/23)

Teladoc Health; Ayr Wellness; Duolingo; Butterfly; Lemonade; JFrog; Upstart; Tattooed Chef

1. Highlights from the 15th annual Teladoc Health Forum

a. Highlights on Primary Care 360 from CEO Jason Gorevic

The pandemic pushed virtual care adoption from 11% to 46% globally. Providers have grown the number of patients they’re seeing virtually by 50x to 175x vs. pre-pandemic. Unsurprisingly, Gorevic has seen “more industry adoption in the last 18 months than vs. the decades before that.”

Through the year 2026, Teladoc expects virtual care spend to quadruple in Europe specifically.

Healthcare demand continues to greatly outpace doctor supply and healthcare costs continue to outpace GDP growth. More than 50% of primary care physicians report feeling burnt out. As a result, the wait time to see a primary care physician is — on average — 30 days. With Teladoc’s Primary Care 360, the company has been able to cut that down to under a week while doubling the access a patient has with their healthcare professional.

Teladoc Health Logo

Remote access is the primary vehicle for pushing our global healthcare systems to attempt to do more with less. That will not change when Covid-19 ends.

Gorevic also spoke at length on the power of Teladoc’s whole person virtual care approach. Competitors offer specific point solutions within the niches of urgent care, primary care, chronic care and mental health. No competitors offer all of these solutions on one, streamlined platform other than Teladoc Health. This full suite of capabilities has enabled the organization to build a long roster of Fortune 500 clients.

Teladoc Health’s well-rounded virtual care ambition is working. In 2017, just 9% of the company’s users were eligible for multiple virtual services. As of 2020, that number rose to 43% and Gorevic expects the vast majority of Teladoc’s patients to be eligible for multiple services in the next 2 years. Cross-selling has a profoundly positive impact on this organization’s margin profile meaning the trend will be a beneficial one for profitability.

b. Highlights from the President of US Group Health Kelly Bliss

“Net promoter score (NPS) for Primary Care 360 is +95.” - Bliss

c. Highlights from the President of Teladoc International - Carlos Nueno

Carlos covered Germany’s recent passing of the Digital Healthcare Act & its implications. The act opens the door for virtual care reimbursement to more directly incentivize the German healthcare system to adopt it.

He also gave an interesting statistic from the National Health Service (NHS) out of England. NHS has reduced face to face visits by 2/3 while maintaining levels of care by embracing virtual.

d. The Teladoc/Microsoft Teams Partnership with Corporate VP of Global Healthcare and Worldwide Commercial Business at Microsoft Tom McGuinness:

The solo platform’s full integration with Teams is just the first stage of this new partnership. Teladoc will also integrate with Microsoft’s electronic medical record (EMR) database and much more.

Sneak peak at the Teladoc Health/Teams collaboration

“We believe the Teladoc Health partnership will take Microsoft’s impactful solutions for providers to higher levels. Teladoc’s industry leadership and unmatched clinical expertise positions us to make a real difference. No more toggling back and forth between various software programs. Providers will be able to focus on outcomes. We think there will be many more interesting ways for our 2 companies to work together.” - McGuinness

2. Ayr Wellness’s busy week

a. Nevada expansion

Ayr Wellness announced an agreement to purchase Tahoe Hydroponics Company and NV Green for $17 million total. These are two separately-run entities with overlapping ownership.

The deal is made up of $5 million in cash, $3.5 million in debt & $8.5 million in Ayr’s stock. Based on the closing price, Ayr is paying roughly 4.5x adjusted 2021 EBITDA.

The purchase comes with 33,000 square feet of growing and processing space throughout Nevada as well as 75 new employees. Tahoe Hydroponics provides premium cannabis flower and concentrate for its own brand (Tahoe Hydro) as well as other popular labels like Cookies and LIT.

It’s broadly known as one of the highest-quality growers in the state. Specifically, Tahoe Hydroponics has won the coveted Jack Herer Cup 6 times which judges the best cannabis flower.

NV Green specializes in cannabis concentrates like edibles and oils.

With these new assets, Ayr will be able to bolster its wholesale operations as well as fortify the supply it offers its own consumers in its retail shops.

b. Entering Illinois

Ayr Wellness also announced a deal to buy Herbal Remedies Dispensaries. This move adds an eighth state to Ayr’s quickly growing footprint (it was in just 2 states 18 months ago).

Ayr will pay roughly 5 times EBITDA for the retail company and will gain access to the 2 Illinois dispensaries that Herbal Remedies owns. The deal is for $30 million total including $10 million in stock, $12 million in notes and $8 million in cash.

This year, Leafly named the Herbal Remedies 1837 Broadway location as one of the top ten dispensaries in the state of Illinois.

Illinois is quite the attractive state. It commands a 31% higher price per ounce for premium flower vs. other states in Ayr’s portfolio like Nevada. Grow costs are essentially the same between the two states meaning Illinois yields a higher gross profit margin (more generally speaking) vs. Nevada. Compared to the United States as a whole, Illinois enjoys an 8% higher price per ounce for premium flower.

The move brings Ayr’s total footprint to 85 million Americans and adds 50 new team members to the company’s roster.

Click here for my broad overview of Ayr Wellness.

3. Duolingo approaches its IPO

Preliminary pricing on Duolingo’s IPO came in at $85-$95 per share. At the high point, this translates to a $3.4 billion market cap.

Based on $3.4 billion, it will trade for 21x trailing sales and 29x trailing gross profit but the valuation could still rise from here before the IPO comes on July 28th.

At $3.4 billion, I’d feel comfortable starting with 40%-50% of a full position. If the valuation creeps above $4 billion that would fall to 30%-40%. Anything above $6 billion and my initial purchase would be a symbolic 10% of a full position.

Click here for my Duolingo deep dive

4. Butterfly’s 2 new executives

Butterfly made 2 interesting hires last week:

1. New Chief Information Officer (CIO) David Ramsey

• Former CIO at 3M, McKesson and TTEC Holdings — all public companies

• Member of the Zoom product development board

• CIO top 100 award from CIO Magazine

2. New Chief Technology Officer (CTO) Dr. Andrei Stoica

• Former CTO at the bio-sensing and remote monitoring company BioTelemetry

• Former Senior Vice President (SVP) at IQVIA — a publicly traded analytics platform for the life sciences industry

Click here for my broad overview of Butterfly.

5. Lemonade’s 1-year pet anniversary

Lemonade’s pet insurance product turned 1-year-old this week.

Here are some interesting stats to celebrate the occasion:

• Non-renters’ products including pet now make up 50% of Lemonade’s new business.

• Renters took years to reach profitable unit economics. Pet insurance took a few months.

• Pet has reached marketing efficiency levels on par with its renters’ product in just a few months.

• Advertising dollars spent on new products in 2020 generated 88% more premium growth vs. 2019

Lemonade logo and some pets

To be successful, Lemonade cannot merely be a renters’ insurance company; it needs to be an insurance company. Based on how well pet and its other new products are performing, that is becoming more and more of a reality every day.

Click here for my broad overview of Lemonade.

6. JFrog Completes its Vdoo Acquisition

JFrog closed its deal to purchase Vdoo for $300 million in total considerations. This is made up of $210 million in cash and $90 million in company stock.

The purchase rounds out JFrog’s security capabilities within its DevOps platform. It will bolster the safety and ease-of-use within JFrog’s binary storage database. Per Vdoo’s website, the company “empowers product security teams and developers to uncover and mitigate the software risks that matter most.” Samsung, Verizon and Bosch are some of its notable clients.

We will learn more about Vdoo and JFrog’s specific plans on its next earnings call August 5th.

Vdoo logo

Click here for my broad overview of JFrog.

7. Upstart’s new partner

This week, Upstart announced an expansion of its partnership with Telhio Credit Union. The 2 companies began working together in May, but are now deepening the relationship with Upstart now servicing personal loans for Telhio. This points to Upstart’s ability to deliver superior loan profitability for its partners.

Telhio will also be part of Upstart’s referral network to boost volume with more qualified loan applicants. With Upstart’s private label partnership approach, all loans Upstart provides to Telhio will be branded as Telhio.

Click here for my broad overview of Upstart.

Click here for my broad overview of Upstart’s risks.

8. Tattooed Chef and Stop & Shop

Tattooed Chef announced that 4 more of its bowls are now available at Stop & Shop. There are 412 total Stop & Shop locations in the United States. Ahold Delhaize USA — the 5th largest grocery chain in the U.S. — is Stop & Shop’s parent company.

Here’s what you can now find at Stop & Shop:

1. Veggie Hemp Bowl

2. Plant Based Burrito Bowl

3. Buddha Bowl

4. Cauliflower Mac & Cheese Bowl

9. My activity

I used the growth stock weakness earlier this week to add to several of my positions.

My purchases:

1. Ayr Wellness — raised my equity stake by 5%

2. Cresco Labs — raised my equity stake by 4%

3. Penn National Gaming — raised my equity stake by 3%

4. Green Thumb — raised my equity stake by 3%

5. Upstart — raised my equity stake by 2%

6. Progyny — raised my equity stake by 2%

7. Teladoc — raised my equity stake by 2%

8. Ozon — raised my equity stake by 2%

9. SoFi — raised my equity stake by 2%

10. GoodRX — raised my equity stake by 1%

When I say “I raised my equity stake by 5%” I mean If I had $1 in equity, I now have $1.05 post-purchase. With the purchases, my cash position fell from 18.7% to 18%.

I plan to continue slowly putting cash to work in my existing holding as (or if) we see more stock pain.

A broken stock and a healthy company is a wonderful gift for any long term investor.

10. Notable events next week for my portfolio

1. Tuesday, July 27th

   • Teladoc Health earnings after hours

   • Microsoft earnings after hours

2. Wednesday, July 28th

   • Boeing earnings before the market

   • Facebook earnings after hours

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Thank you for reading!

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11. Research & images cited

Teladoc Health Forum

Ayr Nevada purchase

Ayr Illinois purchase

Cannabis pricing data

Butterfly’s hires

JFrog 8K

Upstart partnership

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