LFMD - NASDAQ

Good morning. Thank you for joining us today to discuss the results for LifeMD's First Quarter ended March 31, 2023. Joining the call today are Justin Schreiber, Chairman and Chief Executive Officer; and Marc Benathen, Chief Financial Officer of LifeMD. Following managements prepared remarks, we will open the call for question-and-answer session. I'd like to remind everyone that today's call is being hosted via webcast, and the recording will be made available via the link in today's press release, which is available in the Investor Relations section of the Company's website. Before we begin, I would like to remind everyone that during this call, the Company will make a number of forward-looking statements, which are subject to numerous risks and uncertainties that may cause the Company's actual results to differ materially from those projected. These risks and uncertainties are described in the Company's 10-K and 10-Q filings and within other filings that LifeMD may make with the SEC from time to time. Forward-looking statements made during this call are based on current information available to the Company as of today, May 12, 2023. The Company assumes no obligation to update or revise any forward-looking statements after today's call, except as required by law. Also, please note that management will be discussing certain non-GAAP financial measures that the Company believes are important in evaluating LifeMD's performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliations thereof can be found in the press release issued earlier today. Finally, I would like to remind everyone that today's call is being recorded and will be available for replay in the Investors Relations section of the Company's website. Now I'd like to turn the call over to LifeMD's CEO, Justin Schreiber. Please go ahead.

Thank you, Darryl, and good morning, everyone. Thank you for joining us today. We are excited to share the outstanding results of our first quarter and the promising developments across LifeMD. Earlier today, we issued a press release containing our first quarter results and uploaded an updated corporate presentation. I encourage everyone to view our presentation, which can be found on the Investor Relations section of our website. I'm thrilled to begin this call by announcing that the strong foundation we established last year translated into tremendous first quarter performance. Both revenue and adjusted EBITDA surpassed our prior guidance. Our telehealth business saw a return to double-digit growth, achieving a 23% sequential revenue increase. By optimizing our operations, we've achieved record gross margins. A considerable reduction in marketing and G&A expenses as a percentage of revenue and a 40% improvement in our patient's first year lifetime value. I firmly believe that our first quarter financial results validate and demonstrate the robust fundamental growth made possible by our focused investments and efforts throughout 2022. We also strengthened our financial position by securing a $40 million debt financing deal with Avenue Capital, a leading institutional debt fund. In doing so, we addressed one of the greatest constraints we faced last year, the size of our balance sheet. To date, we have only drawn $15 million against this facility, but more importantly, we are operating with increasing profitability and are on track to reach free cash flow breakeven or positivity by mid-2023. The solid financial foundation positions LifeMD as a well-capitalized, growth-driven company in our sector. Our focus remains on several key initiatives, which we are eager to discuss. First, our legacy lifestyle healthcare business, encompassing men's sexual health, hair loss, dermatology and insomnia continues to thrive. After repositioning our product and subscription offerings to maximize profitability, we achieved 20% sequential revenue growth in Q1 in this segment. It comes as no surprise that this segment of our business is immensely profitable, producing contribution margin in excess of 30%. Building long-term equity value in our brands remains a key focus. We are continually enhancing the patient experience, launching new telehealth services and increasing retention and patient lifetime value. And I'm pleased to say that our efforts are being rewarded. In Q1 2023, we saw a 40% increase in first year lifetime value for patients using our telemedicine offering. Second, we are committed to expanding our virtual primary care offering under the LifeMD brand. With over 11,000 active patients as of March 31, 2023, we have seen strong membership growth since the brand launched in mid-2022. We've introduced new pricing for our VPC service aligned with patient needs and designed to improve unit economics. I believe LifeMD's virtual primary care service serves as a best-in-class platform for launching and accelerating growth in new product offerings such as dermatology, insomnia and our GLP-1 weight management program. We continue to see tremendous interest and demand for our differentiated telehealth service offerings from consumers even under a cash pay model, which is allowing us to further improve our platform and expand our healthcare footprint. Also, as we previously guided, we are in the process of setting up the appropriate contracts and infrastructure required to begin accepting private insurance and Medicare payments later this year. Although we continue to see strong growth with our cash pay offerings, we believe that coverage is important and that accepting private insurance and Medicare will enable us to reach an even larger audience and expand our market share. Third, we are making significant progress in growing the enterprise side of our business. While this currently represents only a small portion of our overall revenue, we are convinced more than ever that there is significant demand for our technology platform, the services of our affiliated medical group and the expertise of our team from life sciences companies. We expect to have material news to report on this front in the coming months. Fourth, our WorkSimpli subsidiary is rapidly scaling up, expanding its customer base and enhancing its product offerings. We are seeing this growth in WorkSimpli's top and bottom line. In Q1, WorkSimpli's revenue grew by 101% compared to the previous year, and its EBITDA margins exceeded 20%. Now catering to over 170,000 active subscribers worldwide, WorkSimpli services are available in 16 languages and serve both consumers and small to medium-sized businesses. With continued diversification into resume services, human resources and digital signature service market, it is quickly morphing into a powerhouse in its field, evolving into a one-stop shop for consumers and small businesses requiring workplace and document services. The growing profitability and cash flow of WorkSimpli provide a substantial source of non-dilutive capital for reinvestment into our core telehealth business. Lastly, and this is a point that truly excites me, we've begun to integrate AI into various workflows over the past quarter. The current focus of these integrations has been around enabling our patient care and call center teams to provide elevated service to our patients more efficiently as well as continuing to build upon our already robust business intelligence platform to drive more predictive analytics that will enable us to continue to optimize our marketing and patient retention investments on a real-time basis. I look forward to sharing more updates over the coming year as we believe these and other AI-driven technologies we are implementing will continue to differentiate our offering and allow LifeMD and our affiliated medical group to provide a better experience for patients. With that, I will now turn the call over to our CFO, Marc Benathen, who will provide a summary of our financial results. Marc?

Thank you, Justin, and good morning, everyone. I am pleased to report that during the first quarter of 2023, LifeMD not only returned to double-digit growth in telehealth revenue on a sequential basis, but also continue to drive the company's profitability to record levels. In fact, our performance to clip even our own expectations and prior guidance for first quarter results on both the top and bottom line. Additionally, as reported on our last earnings call, we successfully closed an institutional debt financing with Avenue Capital for up to $40 million, of which we have drawn only $15 million. The combination of a strong balance sheet and LifeMD achieving rapidly growing profitability puts us in a very strong position to continue to execute upon our top and bottom line goals for the rest of 2023 and demonstrate our ability to deliver upon the financial guidance we provided. Now turning to the results for the first quarter of 2023. Revenue in the first quarter totaled $33.1 million, up 14% as compared to the same quarter a year-ago, and up 18% sequentially versus the prior quarter. First quarter telehealth revenue increased by 23% sequentially versus the fourth quarter of 2022, marking our return consistent with our guidance to growth in telehealth revenue. WorkSimpli continued to expand the tremendous rates with first quarter revenue increasing to $12.9 million, up 101% as compared to the same year-ago quarter and 10% sequentially versus the prior quarter. Subscriber growth remained very strong with telehealth active subscribers increasing 14% to 179,933 and WorkSimpli active subscribers increasing 65% to 173,333 versus the same year-ago period. Of particular note, the average order value and first year lifetime value of new patients in our lifestyle healthcare prescription business increased by 40%. We expect as we continue to retain and rebuild these patients that this increased value will be accretive to both the top and bottom line for telehealth. During the first quarter, approximately 70% of our telehealth revenue came from the rebuildings of existing patients versus new patient sign-up revenue. This metric improved by 14% versus the same year-ago period, reflecting our continued strong retention of patients. Gross margins for the first quarter reached 87%, up 500 basis points versus prior year. Gross profit for the quarter totaled $28.9 million, an increase of 22% from the same year-ago period. Operating expenses for the first quarter totaled $31.8 million, a decrease of $5.1 million versus the year-ago period. Operating expenses included $4.2 million of non-cash expenses associated with stock-based compensation, non-cash write-off, depreciation and amortization expenses. In the first quarter of 2023, we also reduced our marketing expense as a percentage of revenue to 50% versus 75% of revenue in the same year-ago period. Our GAAP net loss attributable to common stockholders for the first quarter totaled $4.8 million or $0.15 per share. This compares to a net loss attributable to common stockholders of $14.1 million or $0.46 per share in the first quarter of 2022. Adjusted EPS, a non-GAAP financial measure that excludes non-cash expenses, preferred stock dividends, litigation expense, non-controlling interest, M&A expenses, financing costs and foreign currency translation totaled a gain of $0.06 per share as compared to a loss of $0.25 per share in the same year-ago period. Adjusted EBITDA, a non-GAAP financial measure, excluding the same account categories as noted in adjusted EPS, totaled a gain of $2 million in the first quarter of 2023. This compares to an adjusted EBITDA loss of $7.6 million in the same year-ago quarter. Now turning to our balance sheet. Cash totaled $11.5 million as of March 31, 2023. And at the same time, current liabilities were reduced by $4.4 million, driven by reductions in our account payable balance. Excluding the impact of discretionary paydown of accounts payable and accrued expenses, our cash burn associated with operations and investing activities was only $678,000 for the quarter. This compares to a comparable cash burn of $11.2 million in the same year-ago quarter. We remain on track to reach our target of free cash flow breakeven or positivity by the middle of 2023. In addition, we successfully closed the non-dilutive financing with Avenue Capital for up to $40 million in debt capital, of which $25 million remains undrawn. All of this puts LifeMD’s balance sheet in the position of strength and ensures our business is well capitalized to meet our long-term objectives. This wraps up our financial results. I'd now like to turn the call back over to Justin.

To wrap up today's call, I'd like to summarize for our shareholders our three main strategic priorities for 2023. Internally, we call them 3P’s: profitability, partnerships and primary care. The first P, profitability. We will continue to scale and optimize our operations such that LifeMD will deliver upon our financial guidance of delivering $12 million to $18 million of full-year 2023 adjusted EBITDA, a significant improvement over the fiscal year 2022 figure of a $15 million adjusted EBITDA loss. The second P, partnerships. As I mentioned earlier, LifeMD will enter significant partnerships this year. The recent announcement of one such partnership with HealthWarehouse. We expect to follow with several meaningful partnership and enterprise deals across pharmaceutical, health and wellness and healthcare services spaces. The third P, primary care. We will continue to invest in our primary care platform, which is at a major inflection point. Our platform not only supports the continued growth of our urgent care and concierge care service offerings is now serving as a facilitator for partnerships and condition-specific offerings that require a sophisticated primary care infrastructure, such as our weight management program that includes GLP-1 medication. With that, I would like to thank our entire team again for their hard work and our shareholders for their continued support and trust in our vision as we head into what I think will be the most exciting period for our company thus far. With that, I would like to open the call for Q&A.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our questions come from the line of David Larsen with BTIG.

Hey, guys. Congratulations on an excellent start to the year. Your EBITDA, both your EBITDA and revenue look very good relative to expectations. Justin, can you maybe start off and talk a little bit about the relationship with warehouse.com? What is it? The press report? It seems to say that you have access to over 1 million patients. Just any color there would be very helpful? Thank you.

Yes. First of all, thank you, David, for the compliment. We're really happy with first quarter performance across the board. Regarding HealthWarehouse, they're a great pharmacy. They ship prescription medications and over-the-counter products across all 50 states. They have a very large patient population. They have a lot of people on a daily basis that show up at their website without having a prescription necessary for either a new medication or a lot of times to refill. They also have a big – you mentioned a 1 million patient number. That was a number that they provided to us, but they have a very, very large population of patients that have used them in the past for prescription. And their intent is to go back to that patient population and market LifeMD as a very trusted, high-quality affordable telehealth provider. And then as people are coming in, we're in the process of getting live some additional flows so that as patients are showing up in their website for a prescription, they can immediately and seamlessly speak to a LifeMD affiliated provider on demand and get a prescription, if that's appropriate.

So how does the relationship work? Like it sounds like warehouse.com has their own pharmacy, LifeMD obviously also have your own pharmacy services. Would you expect to increase the number of prescriptions that you're dispensing as a result of this relationship? Or would it be more focused on incremental membership in the primary care area?

Well, remember LifeMD, David, partners with a number of pharmacies across the country, we don't own a pharmacy. And so in this case, this would be all about us helping them grow their business by increasing access to quality health care. For us, it's just – this is just a lead gen, right? I mean it's a source of what we believe could be a significant number of new patients to our medical group, those patients are…

Okay. Great. And then I hear some feedback, sorry. The number of telehealth subscribers, I think, increased to 180,000 from 169,000 in 4Q. But the telehealth revenue was actually down 11% year-over-year. Can you just provide some context around that? I mean, it sounds like you're focusing more on profitable growth as opposed to revenue growth at all costs. Any color there would be very helpful?

Yes, this is Marc. Yes, that's definitely part of it. We're focused on profitable growth. But the real way to look at it is, as we spoke about last year, and guided this year. We did a little bit of a reset in the back half of last year such that our telehealth revenue was lower in Q4 than it was in Q1 of last year. Because we stripped out a lot of the types of customers and subscribers that were not as profitable and focused obviously on the ones that were and the product areas that are most profitable. So the real way that you have to look at it is off of the sequential base since we're a recurring subscription business. And the revenue did grow 23% sequentially off of the Q4 base, and we expect to continue to grow sequentially throughout the year as we've completed that reset process in the back half of the year. And all that's consistent with how we guided last year.

And Marc, you mentioned a couple of metrics around the yield on ad spend or the 40% improvement in lifetime value to you in year one. Do you have any other metrics that you can share? Like any specifics, any numbers that you can share in terms of like the CAC, year one revenue and lifetime value?

Yes. Look, we were prior to some of the upgrades and enhancements that we made last year, getting closer to just under $400 and year one revenue and our prescription businesses from the typical patients under the new mechanisms and how we're performing today, that number is right now a little bit over $500 in the first year. So that's essentially the 40% increase. Now there was a slight increase about 10% or 15% in CAC. So the actual LTV to CAC is still increasing by about 30%, 25%, 30%. So we're actually expecting at the end of the first year instead of getting somewhere in that around 1.7 range that we can get closer to being 2.1, 2.2, possibly even higher by the end of the first year. And then that would translate on a three-year basis to growing from around 3x return on investment to closer to 4x with our non-investment.

Okay. And then, so that all sounds very good. When we look at other competitors in the space like Teladoc, for example, they've been facing some challenges in their direct-to-consumer business, those EBITDA margins have come under significant pressure. Part of that is due to higher ad costs. And we're kind of seeing that across the board as companies kind of tightened up ahead of the risk of a recession. What are you seeing in terms of your own ad costs? It sounds to me like you're managing through it? And what's the difference?

David, this is Justin. I'll comment on that. So we have seen with some traffic sources. We have seen slightly higher ad costs, but we've been doing a great job at launching new products, really focused on – really focusing very heavily on the retention side of the business going back into our data and finding patients that can be put back on to a subscription and the need treatment. And we've just been, like I said, focused on optimization and figuring out ways to kind of creatively market the awesome portfolio of services that we have. And so we're really happy right now with where the unit economics are. It was a great quarter. And very confident as well, that we can continue to grow the business with the same unit economic profile or even better throughout the rest of the year despite seeing some increases in advertising costs.

Okay. And then can you talk a little bit about your EBITDA margin expectations for the WorkSimpli and also healthcare businesses? I think I heard a number 20% for WorkSimpli, any color around the healthcare side?

Yes. So WorkSimpli is currently a little bit over 20% in EBITDA margins. I'd expect by the end of the year, they could be approaching 30%, probably won't quite get there. They'll be a little bit under that. On the healthcare side of the business, we had a slight loss in the quarter. I mean, at this point we’re a little bit over $1 million a quarter loss not a very significant one. We expect to be profitable by the end of the second quarter, beginning of the third quarter in the telehealth business. And then by the end of the year, the fourth quarter, I mean, I'd expect to see EBITDA margins potentially around mid single digits. And then obviously scaling into double digits next year and continuing to grow pretty rapidly thereafter. I would say, in the healthcare business, the healthcare business is completely profitable with the exception of the fact that we've made an investment, which we think suits us very well long-term in the scaling of virtual primary care. If we were not investing in scaling that business, which obviously is our biggest growth driver, and we think we'll pay massive dividends looking ahead and should be profitable by the end of the year. The rest of the business is very profitable.

Okay. And then along those lines, within the primary care business, I think I saw something like 100% sequential growth. Is that correct? And then Justin, you talked a little bit about accepting insurance over the coming months or years? Just any color there would be helpful. My view is obviously that primary – virtual primary care is a high-growth area. We saw that with PlushCare within Accolade. It continues to be high growth within Accolade and the intrinsic value there was obviously very high. Just any more comments there would be very helpful.

Sure. Yes. David, we're excited about this. I think that we will have in our – I think that we will be live in 10 states by the end of the summer, as we previously guided, with the top 3-ish plans, health plans in each state. So really excited about that, we just think it's going to again put downward pressure on our cost to acquire. We think it's somewhere 30%, 40% of patients right now that land on a LifeMD’s flow just want to use their insurance card even if the price is similar. So we're on track there. It's a big effort internally. On the Medicare side, we're also very excited about that. That could be a later in the year saying as opposed to this summer, but we are going through the process of credentialing all of our affiliate providers for Medicare. And most importantly, we're in the process, which is setting up a best-in-class compliance infrastructure which, as you can understand, is the most – what we feel is the most important part of Medicare. There's a bill right now that's working its way through the house with bipartisan support that's designed to essentially reduce costs in the Medicare system by moving a lot of services out of the hospital. And some third parties have estimated that the economic opportunity of that for in-home and virtual providers could be as high as $250 billion over the next three years. And so that's just one example, right, of why we think it's very important for LifeMD, to have the medical group credential to have an amazing compliance infrastructure in place for Medicare. Because we just – we think there's a long-term very significant opportunity there. We also have some partnerships on the enterprise side that I would describe in late stage. With companies that this could also be – the Medicare coverage would be really game changing for us. So we also look at it as a competitive advantage in our enterprise business as well.

Okay. And then you also made some comments around GLP-1 and the cost of diabetes drugs. That's getting a lot of attention amongst the investment community. Just any thoughts or color there would be great. How do you help control spend? And is it a profitable solution for you? Just any thoughts there?

Sure. We've been working clearly, I think everybody understands the market opportunities within this whole weight management and specifically, Semaglutide, Tirzepatide space. Most – a lot of people are estimating that to be $100 billion to $200 billion a year market in the U.S. and maybe up to 50% of Americans could be on one of these medications. LifeMD has a weight management platform that is live. We're currently doing 30 to 50 patients a day. We're intentionally kind of limiting the patient numbers there. There's very, very strong demand for weight management treatment that includes when appropriate, these medications. And I think it's going to be a very exciting part of our story this year. One of the things, David, that I'll point out is we made big investments in tech over the last two years, as you know, especially in almost all of it inside of our virtual primary care platform. And all of a sudden, we now have a market such as this, where this platform that we've put an incredible amount of effort and time and capital into, is perfectly positioned to help patients access these drugs to help them go through the prior off process. We have care journeys that we're launching inside of our mobile applications and desktop applications, specifically designed for weight management. Our lab partnerships with Quest, in particular, is game changing. They have a lab that they've built and pricing designed specifically for these medications. So stay tuned. But we're very, very excited about the opportunity for our platform within the weight management space this year and in the years to come, right? We believe it's a very long-term business.

Okay. That’s great. Very helpful. And then just my last question here. The 2Q guidance looks pretty good to me. We're now halfway through May, the EBITDA guide for $2.5 million to $3.5 million is ahead of what we were modeling. Just any thoughts or color there? I mean what are the tailwinds or headwinds around that? Thanks.

Yes. Look, I think the revenue is pretty consistent with where we said the EBITDA is a little bit higher. We've just had a lot of really strong momentum. The gross margins have been performing really well and a little bit ahead of where we were in terms of guidance. So retention has been slightly better. So all of that's kind of added up to guide that's a little bit ahead. Obviously, WorkSimpli has also been performing well, although in line with what we had baked into the guidance.

Okay. Congratulations on a very good quarter. Good start to the year and I'll hop back in the queue.

Thanks, David.

Thank you. We have reached the end of our question-and-answer session. I'd like to turn the call back over to Justin Schreiber for any closing comments.

Thanks, everybody, for participating in LifeMD's Q1 Earnings Call. Hope everybody has a great weekend and look forward to providing, hopefully, another very positive update next quarter.