LifeMD - Q1 2024

Transcript

Operator (participant)

Good afternoon. Thank you for joining us today to discuss LifeMD's results for the first quarter ended March 31st, 2024. Joining the call today are Justin Schreiber, Chairman and Chief Executive Officer, and Marc Benathen, Chief Financial Officer. Following management's prepared remarks, we will open the call for a question-and-answer session. 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 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 8th, 2024.

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 Investor 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.

Justin Schreiber (CEO and Chairman)

Thank you, and good afternoon, everyone. After the market closed, we issued a press release announcing our first quarter financial results and posted an updated corporate presentation on our website at ir.lifemd.com. Last year's robust business momentum continued into 2024, producing strong first-quarter performance across both our weight management and Rex businesses. During the quarter, we added 20,000 total patient subscribers, ending the quarter with over 235,000. As of the end of the first quarter, we had over 42,000 weight management patient subscribers, with performance in this area continuing to be well ahead of our expectations. As of today, I am pleased to report we have over 50,000 weight management subscribers. Importantly, more than 80% of patients who start GLP-1 treatment remain a patient after 90 days, and we are very pleased with these and subsequent first-year retention figures.

Our core telehealth business continues to outperform, with revenue growing 53% versus the prior year. Continued outperformance in our GLP-1 business is the key driver behind the increase to 2024 revenue guidance we're announcing today. Our non-core subsidiary, WorkSimpli, started the year off with softer-than-expected results in January and February before returning to growth in March and ending the quarter with a sequential increase of 8,000 subscribers. For the quarter, WorkSimpli revenue grew 3% versus the prior year, but this business remains on track to achieve the full-year revenue and EBITDA goals consistent with our guidance. As we look ahead to the rest of 2024, we're focused on several key initiatives that we believe will catalyze significant growth in LifeMD's market share and our top and bottom lines in 2024 and beyond.

I'll speak more about each of these initiatives today, which include: 1) continued growth of our GLP-1 weight management program, 2) new launches under REX MD, 3) the launch of private and government insurance options, and 4) implementation of AI initiatives across our telehealth business. First, our weight management business continues to enjoy tremendous growth, with demand for our services and products still consistently exceeding the supply of available appointments. As I mentioned, we added a record 20,000 new patients in the first quarter, with no signs of this trend slowing down. Unit economics remain tremendous, with our day-one return on ad spend continuing to exceed 1x and our expected month 12 return on ad spend expected to be at least 2.5x. During the quarter, we also accelerated our rate of growth in new patient signups from less than 200 per day to 400+ new patients per day.

Today, the single greatest limiting factor to our growth has been creating additional appointment capacity and our ability to scale our ratio of patients to providers. To accomplish this, we continue to invest in growing our clinical staff, but also, and equally as important, we continue to invest in developing our platform's automation and technical capabilities to create more efficiencies for our affiliated providers and patient support teams while enhancing the overall experience patients have on our platform. Additionally, we've recently begun to see significant upticks in the approval rates for GLP-1 payer coverage from the prior authorizations we file. Currently, we see approval rates of 40%-50% on Wegovy and Zepbound prior authorizations, with copays averaging between $35 and $70.

These figures are a big improvement from our approval rates earlier this year, and they have contributed to our more recent refund rate declines from nearly 33% to approximately 15%-20% today. As announced in December, we signed a collaboration agreement with Medifast, one of the largest coach-guided diet and nutrition companies in the U.S., which included a $10 million equity investment and $10 million in collaboration fees for LifeMD. Medifast's OPTAVIA coaches are now able to work with LifeMD affiliated providers to provide patients with an integrated solution and holistic approach to weight management. Medifast will also be investing at least $25 million in consumer marketing to support growth of this program for the balance of 2024, which we expect to have a meaningful increase in the volumes of new patients acquired from this program.

We are pleased with the collaboration to date and look forward to providing more updates on this integrated offering as it is fully rolled out in the coming months. Moving to our second key initiative, we remain as excited as ever about our REX MD brand, which has consistently produced double-digit growth and strong profitability without the benefit of any new products. This quarter, I am pleased to announce we expect to launch two new offerings under this brand. First, we plan to launch our hormone replacement therapy offering led by testosterone therapy. This offering not only presents a tremendous cross-sell opportunity for the existing Rex patient base but also addresses a tremendous and underserved telemedicine market for LifeMD to tap into within the men's health market that is highly synergistic to our existing Rex and GLP-1 weight management businesses.

The current size of this market is estimated at $2 billion annually, and unlike many other categories LifeMD has successfully entered, we expect to be an early mover in this market from a telehealth standpoint with a comprehensive and differentiated offering designed in conjunction with leading clinical experts in the field. We expect this offering to be a substantial contributor to the company in the years to come. Additionally, later this month, we will also be launching our weight management program under REX MD as an asynchronous offering. Similar to HRT, we expect this offering not only to have substantial cross-sell potential but also to provide a valuable new avenue from which to market our industry-leading weight management program as a bundled offering with clinical care.

The fact is that in just four short years, REX MD has grown to become one of the leading men's health brands in the U.S. and has been trusted by over 500,000 men to date. REX MD patients typically have ample disposable income, are typically over the age of 40, and they know and trust Rex for the outstanding service and patient experience we provide. Our data suggests there is a substantial need for both HRT and weight management services among these patients, and we believe both of these new offerings have the ability to significantly accelerate the REX MD business and, in turn, the LifeMD growth rate in the years to come. Under our third key 2024 initiative, we continue to make good progress preparing for the launch of our insurance program offering.

We are on track to launch our initial insurance visits on a limited-state basis in the second quarter, with the first state expected by late May or early June for our virtual primary care offerings, including weight management. We have several payer contracts in place, we hired our initial head of revenue cycle management, and we are in the latter stages of finalizing our systems deployment for government provider enrollment, benefits verification, and revenue cycle management. While we do not expect this launch to be material to 2024 results, we do believe insurance capabilities will be extremely valuable and differentiating in 2025 and beyond while also driving further retention improvements. Additionally, we are extremely excited about launching government insurance capabilities by late 2024 or early 2025. The fact is, this population is an entirely new audience for LifeMD.

Today, there are over 65 million people enrolled in Medicare across the U.S., with that number growing each year. In addition, with the recent FDA approval of Wegovy for cardiac health, estimates show that approximately 4 million people could receive coverage through Medicare for this drug. Because of this, we believe insurance, and in particular government insurance plans, represent a huge untapped market for LifeMD, which is why we've continued to build our compliance capabilities specifically geared towards supporting the needs of Medicare beneficiaries. By doing so, we also believe we are further differentiating ourselves into a telemedicine market leader that's capable of servicing the full range of patient populations and a significant number of healthcare needs. I'm pleased to announce that we have made meaningful progress in the implementation of AI across the organization.

Since launching pilot AI features in early March, our patient care experts have achieved 60% greater response throughput for patient inquiries, where over 48,000 responses have been sent to patients with support from our trained AI models. We've now also used AI classifiers to triage over 168,000 patient messages across medical, administrative, shipping, and technical categories for streamlined and improved patient care. We are just scratching the surface in this area, and I'm excited to announce further improvements on our ability to scale, improve cost efficiency, and deliver better care in the quarters to come. In short, we are extremely excited about the potential for continued strong performance in 2024 while building new foundations for additional growth and differentiation in the years to come. And with that, I'll turn the call over to our CFO, Marc Benathen, who will provide a summary of our financial results. Marc?

Marc Benathen (CFO)

Thank you, Justin, and good afternoon, everyone. LifeMD had solid first-quarter financial performance, with total revenue growing to $44.1 million and Cash-Adjusted EBITDA of $4.8 million, a 108% increase for this measure versus the prior year comparable period. Q1 revenue was up 33% versus the year ago, with telehealth revenues increasing 53% and WorkSimpli revenues increasing 3%. Adjusted EBITDA, not including the increase in deferred revenue related to prepaid subscriptions, primarily from weight management growth, was approximately $500,000. WorkSimpli, which had soft January and February performance, rebounded sharply in March and ended the quarter with a sequential increase in subscribers of 8,000 versus the prior quarter.

Our GLP-1 weight management program continued to overperform, driving growth in telehealth and sizable benefits in cash flow from operations, which exceeded $5 million for the quarter, and positive net cash flow as LifeMD's cash balance grew by $2 million during the quarter purely from strength of our D2C telehealth business. Telehealth subscriber growth remained strong, with the number of active subscribers increasing 31% year-over-year to approximately 235,000, while WorkSimpli active subscribers contracted 4% to over 166,000. As I mentioned, WorkSimpli subscribers did return to growth late in the quarter and ended the first quarter with an increase of 8,000 subscribers compared to the fourth quarter of 2023. Importantly, with this return to growth, we expect WorkSimpli to meet full-year EBITDA expectations in the range of $17 million-$18 million and full-year revenue expectations of $65 million.

Consolidated gross margin for the first quarter was a record 89.6%, up 230 basis points versus the prior year period. Gross profit for the quarter totaled $39.5 million, an increase of 37% from the year ago. Our GAAP net loss attributable to common stockholders for the first quarter totaled $7.5 million, or a loss of $0.19 per share. This compares to a GAAP net loss attributable to common stockholders of $4.8 million, or a loss of $0.15 per share in the first quarter of 2023. Adjusted EPS is a non-GAAP financial measure that excludes interest, taxes, non-cash expenses, dividends, stock-based compensation and insurance acceptance readiness, litigation expense, non-controlling interests, M&A, financing transaction costs, and foreign currency translation. Reflecting those adjustments, adjusted diluted EPS for the first quarter was $0.01 compared with $0.06 in the year ago.

Adjusted EBITDA, which is a non-GAAP financial measure that excludes the same items I noted for Adjusted EPS, totaled $0.5 million in the first quarter of 2024. This compares with Adjusted EBITDA of $2 million in the year ago quarter. Importantly, though, when adjusting for the sizable increase in deferred revenue related to weight management, Cash-Adjusted EBITDA totaled $4.8 million, up from $2.3 million in the year ago period, representing an increase of 108%. LifeMD generated $5.2 million of positive cash flow from operations during the first quarter of 2024 versus negative cash flow from operations of $2.6 million in the year ago period. This is the fourth consecutive quarter of positive cash flow from operations and the third quarter of positive net cash flow when factoring in cash flow from investing and financing activities.

Cash balance has totaled $35.1 million as of March 31, 2024, an increase of $2 million versus the prior quarter driven entirely by continued strength in cash flow generation from our telehealth operations. As Justin mentioned, we are raising our 2024 guidance for total revenue to be at least $205 million, up from at least $200 million previously, while reaffirming our Adjusted EBITDA guidance to be between $18 million and $22 million. This wraps up our financial results. I'd now like to turn the call back over to Justin.

Justin Schreiber (CEO and Chairman)

Thanks, Marc. As I've always said on these calls, I remain very optimistic and excited about the future of LifeMD. Our core businesses are growing, have dominant positions in very large markets, and have a clear and long-term growth trajectory. For the remainder of this year, we will focus on profitable growth of our telehealth business. This means relentlessly focusing on creating an amazing patient experience, investing in our differentiated telehealth services and products, and continuing to enhance and optimize our technology platform. Continued focus in these areas drives better patient outcomes, better retention, and better returns for shareholders. With that, I'd like to thank everyone for joining us today, and we'll now open the call to Q&A. Operator?

Operator (participant)

Thank you, ladies and gentlemen. Should you have a question, please press star 1. To withdraw your question, press star 2. One moment, please, for your first question. Your first question comes from David Larsen from BTIG. Please go ahead.

David Larsen (Managing Director and Equity Research Analyst)

Hi. Congratulations on the quarter. Can you maybe talk about your expectations for profitability of the healthcare business? Are you EBITDA breakeven right now or not? What would you expect healthcare EBITDA to be in, say, 4Q of 2024, for example? Then how should we be thinking about an EBITDA margin for healthcare as we head into 2025? Thank you.

Marc Benathen (CFO)

Yeah. This is Marc, David. So the telehealth EBITDA is slightly negative today. It is cash flow positive. The only reason it's negative is the deferred revenue from weight management. The EBITDA loss from telehealth this quarter was slightly below $1 million, so not very significant, actually. It's moving in the right direction. And again, with the sizable increase in deferred revenue of $4.3 million, if you add that to the about $1 million loss, telehealth business is actually $3 million positive on a cash flow basis. So really moving in the right direction. We still expect the business, from a P&L standpoint, to turn profitable June/July of this year, which would mean the first quarter that you would see standalone profitability for telehealth would be the third quarter. And we expect a pretty steep slope up from that.

In the fourth quarter, we do expect between $3 million-$5 million of EBITDA from the telehealth business by itself. Next year, we do expect EBITDA to exceed $20 million on a full-year basis.

David Larsen (Managing Director and Equity Research Analyst)

Okay. Fantastic. So $20 million of healthcare EBITDA for fiscal 2025, I guess, is the guide. And then can you maybe just talk about what the drivers of that incremental profitability are? I mean, is it I mean, nothing simple, but is it as simple as gaining leverage with your I think it's 30 providers that you have on your platform. As you add more weight management members, you basically scale, and they simply become more profitable. Is it that simple, or are you sort of changing pricing or creating a?

Marc Benathen (CFO)

No, no, no. I mean, we're not taking price increases. That's not our business. It's a few big factors. So firstly, we have about 70 providers today. But where a lot of the profitability scale comes from is a few factors. One, continuing to leverage our marketing spend as a percent of sales. Right now, we're in a very heavy growth early phase of weight management, so you're not going to get much leverage at this point. But as we put on, we're over 50,000 patients at this point. As we put on more and more, a greater percentage of that revenue comes from rebilling of existing patients than comes from new patients. New patients have an acquisition marketing cost associated with it, which we are slightly in the red day one on a cash basis, obviously a GAAP basis.

You look like you're more in the red because you spread most of that out over six months. Rebill patients, almost all of that flows to the bottom line. You've essentially got your COGS and merchant fees. So something like 70%-80% of that flows to the bottom line. So that's the biggest lever, is obviously leveraging the marketing expense, retention of existing patients, which gets bigger and bigger as the base gets bigger in weight management. And then the other piece, as you mentioned, is just continuing to leverage our G&A, which will move up as we get bigger, but it doesn't move up in lockstep with the rate of growth and revenue, and leverage comes from that as well.

David Larsen (Managing Director and Equity Research Analyst)

Okay. Just one more before I hop back in the queue. How many weight management members did you have at March 31st, and then how many do you have right now?

Marc Benathen (CFO)

Yeah. We have 42,000 on March 31st, approximately, and we have slightly over 50,000 now.

David Larsen (Managing Director and Equity Research Analyst)

Okay. Fantastic quarter. I'll hop back in the queue.

Marc Benathen (CFO)

Thanks, David.

Operator (participant)

Your next question comes from Sarah James from Cantor. Please go ahead.

Sarah James (Managing Director and Equity Analyst of Healthcare Services)

Thanks. So it's impressive growth to 70 physicians. Are you guys still looking at adding about 4-5 a month? And I think previously we talked about there being capacity for about 1,000 patients per physician. So does that mean that you guys have the capacity to go up to about 70,000 weight loss patients with your current staffing levels?

Justin Schreiber (CEO and Chairman)

Hi, Sarah. This is Justin. So we're continually adding providers to the platform 4-5 a month sounds like a fairly accurate number. It might be slightly more than that. It's a mix. It's a mix of we are adding some part-time providers as well. And then as far as scale, I think we can I think we think the number is greater than 1,000 patients per provider. We probably think it's close to double that, especially if our tech is our tech is in place and kind of doing what we think it should be doing. But generally, the goal our guide for this year, as we've talked about before, was based on that 350 new patient per day range. We do think we're going to end up coming in ahead of that, which is one of the reasons why we've increased the guidance a little bit today.

If we were to scale to 1,000 patients a day, we would have to probably double. We'd probably have to increase the physician group by at least 50%.

Sarah James (Managing Director and Equity Analyst of Healthcare Services)

Thanks, Justin. And also, it's great timing with you guys getting set up in late 2024, early 2025 to launch the government insurance, coinciding with the FDA approval of Wegovy for cardiac. How do you plan to tap into that market? So do you guys need to modify your marketing channels and strategy? And how are you thinking about leveraging your installed base with reps to tap into seniors?

Justin Schreiber (CEO and Chairman)

Well, we think there's a big opportunity there in the fee-for-service world with Medicare beneficiaries. I think that we're initially, our plan is to tackle this the same way, in a very similar way to our current offerings, but allow people to use their Medicare or use their private insurance and then pay a concierge fee alongside of that for non-covered services.

Sarah James (Managing Director and Equity Analyst of Healthcare Services)

Thank you.

Operator (participant)

Your next question comes from William Wood from B. Riley Securities. Please go ahead.

William Wood (Equity Research Analyst of Healthcare and Biotech)

Thank you. Congratulations on the very nice quarter, and thanks for taking my questions. You recently passed the 1-year mark when you launched your weight management business. Given that I've seen figures of upwards of 60% of people that use GLP-1 drop off after the first 12 months, do you have any retention data, possibly even for the 6 months, that people, the first patients who started around this time last year, and then how many have stayed on for 6 months versus maybe even 12 months?

Marc Benathen (CFO)

Yeah. So from a retention standpoint, Marc, patients that go on therapy, so as we've talked about before, we have that initial drop-off due to access issues, people not getting approved for coverage under branded, not wanting to go on a compounded treatment, and not being able to afford to cash pay, which obviously many people can't afford. When we started the business in April of last year on the weight management side, for the first several months, that was about 33% of the cohort would drop off during that period. We're down to 15%-20% dropping off now. Prior approval rates have gotten better. Our communication, our diligence, and our processing has all gotten better. So that's been one win.

If you go then to people that get on treatment, which typically you'll know, in most cases, within the first 30 days, sometimes it can extend longer because some prior authorizations go longer. The first 90 days that those people are on treatment, we see over 80%. It's actually about 80% or 83% remain on treatment after 90 days. So really strong initial retention rates. The longest cohorts that we have today that are meaningful, I mean, the first couple of months, it's not really statistically significant, are about 10, 11 months old at this point. What we're seeing is we're seeing retention approaching about 50% of the total.

If you consider the fact that in those cohorts so say you started with 100 people, 30 of them dropped off for access issues right away, the retention long-term of those people that are going on treatment still looks like it continues to be very good.

William Wood (Equity Research Analyst of Healthcare and Biotech)

Got it. Very helpful. Appreciate that color there. I mean, you've noted just recently that to get up to 1,000 patients a day, you would need to increase providers by 50%. Are you trying to bring in sort of the AI and more of the automation, or how should we think about the continued scale-up and what it's really going to take with growing not only the top line but the bottom line?

Justin Schreiber (CEO and Chairman)

Yeah. This is Justin, William. That's a good question. I mean, the AI is something we're really excited about. As we talked about during the call, we're seeing a lot of efficiencies now across the organization from rolling some of these things out. I mean, I think that over time, it certainly will make a big impact on the clinical side. But I think near term, the AI and a lot of the efficiencies that come from our technology platform are really kind of helping us to provide incredible care to more patients as we scale the business. They're reducing the costs associated with patient care, the patient service, the call center, all of that stuff.

So it certainly is going to play a role and help us scale the business without expanding the overhead as much as we've had to kind of go from 0-50,000.

William Wood (Equity Research Analyst of Healthcare and Biotech)

Got it. Appreciate that. I'll jump back in queue. Thank you for taking my questions.

Operator (participant)

Your next question comes from Alex Fuhrman from Craig-Hallum. Please go ahead.

Alex Fuhrman (Equity Research Analyst)

Hey, guys. Thanks very much for taking my question. Wanted to ask Justin about the upcoming launch of a weight management offering under the REX MD brand. Can you talk a little bit about how you're going to go after that male consumer and just how that compares to your existing weight management business under the LifeMD brand? If you could maybe share with us how much of that existing business is male versus female.

Justin Schreiber (CEO and Chairman)

Yeah. Hi, Alex. This is Justin. So the initial focus of the REX MD weight management offering will be on our existing database, which is 150,000-200,000 active subscribers, 500,000 subscriber, formerly active subscribers. And then we have a lot, millions of prospects in that database as well. So that's the initial focus of those efforts. There's clearly a lot of these men that are 40-50 years old as kind of the target demo that have erectile dysfunction. We know at least 50% of them have multiple chronic conditions. Obesity is typically or being overweight or obese is typically one of them. So as far as how we're going to target them, it's going to be very similar to the way that we targeted men for erectile dysfunction and the other treatment offerings on REX MD.

As far as how it's going to be structured, we plan to use the same technology platform that we use for our ED business, which is an async platform. There's some sync capabilities in certain states where it's required. But we plan to use that same platform. It'll be a bundle. We're planning to launch a bundled offering, which will be basically a therapy, a provider, and the entire program similar to what we have on the weight management side. It's going to be priced somewhere around $300 a month, is the plan. And look, we just think that there's a big opportunity here within this demographic for a weight management offering, and we're really excited about getting this thing launched. We're going to be launching it in the next couple of weeks.

It's a very near-term initiative for us.

Alex Fuhrman (Equity Research Analyst)

Great. That's really helpful, Justin. Thanks. And then on the Medifast partnership, it sounds like they're going to be spending quite a bit of money marketing your joint offering in the third and the fourth quarter. Can you give us a sense of how much of your expected growth in the back half of the year is expected to come from this REX MD weight management offering as well as the Medifast partnership?

Justin Schreiber (CEO and Chairman)

The vast majority of the growth that we have in our guide for the year really doesn't include Medifast and REX MD. We think both of these things we think they're both going to be successful. I think that's a lot of upside for the year. We're excited about both of them.

Okay. That's really helpful. Thank you, Justin.

Operator (participant)

Ladies and gentlemen, as a reminder, should you have a question, please press star one. There are no further questions at this time. I will turn the call over to Justin Schreiber for closing remarks.

Justin Schreiber (CEO and Chairman)

Thanks, everybody, for your questions and for your interest in LifeMD. We look forward to speaking with you once again when we report our second quarter results in August. Have a good evening.

Operator (participant)

Ladies and gentlemen, this concludes your conference call for today. You may now disconnect your lines. Thank you.