LifeMD - Q2 2020
August 17, 2020
Transcript
Operator (participant)
Good afternoon. Thank you for joining us today to discuss Conversion Labs' second quarter and first half of two thousand and twenty results, ended June thirtieth, two thousand and twenty. Joining us today is the Chief Executive Officer of Conversion Labs, Justin Schreiber, and the company's Chief Financial Officer, Juan Piñeiro. They are joined today by the company's Chief Operating and Technology Officer, Stefan Galluppi. Following the remarks, we'll open the call to your questions. Before we conclude today's call, I'll provide some important cautions regarding the forward-looking statements made by management during the call. I'd like to remind everyone that today's call is being recorded and will be made available for telecom replay via instructions in today's press release, which is available in the investor relations section of the company's website. Now, I'd like to turn the call over to Conversion Labs' CEO, Justin Schreiber. Sir, please go ahead.
Justin Schreiber (CEO)
Thank you, Orlando, and good afternoon, everyone. Thanks for joining us today. 2020 has been a transformational year for Conversion Labs, and it reflects the extremely disruptive shift currently occurring in U.S. healthcare. One of the largest markets in the world is the rapid emergence of telemedicine. Telehealth represents a massive shift in the way individuals think about and approach healthcare, much like how the advent of the internet and smartphone transformed how we live and work. This opportunity is why we spent most of 2019 building out our nationwide telemedicine technology and customer acquisition platform, but we didn't anticipate how a global pandemic would accelerate this change so dramatically. Since launching our telehealth platform late last year, we've experienced nothing short of incredible growth across all our products and brands.
As you saw in the release we issued this morning, Q2 was another record quarter for us, reaching $9.1 million in revenue, an increase of 237% over the second quarter of last year. I'm particularly excited about the growth we're seeing in recurring subscription revenue, which we'll talk about in more detail later. This is high-margin revenue and is the most important contributor to near-term profitability for the company. The first two quarters have served to validate not only our vision, but also our ability to continue this growth through the rest of 2020 and beyond. Thanks to the strategic investments we've made in our brand, our people, and our infrastructure, we believe that we will emerge as a national leader in telehealth.
Our capabilities and platform in telemedicine, combined with what we believe to be the best digital marketing team in the U.S., makes us truly excited what the future holds for Conversion Labs. There is a lot more to talk about, but before we go further, I'd like to turn the call over to Juan, our CFO, who will take us through the financial details for the quarter. I'll then return to talk more about our operational activity, along with some help from our CTO and COO, Stefan Galluppi, and then discuss our outlook for the remainder of the year. Juan?
Juan Manuel Piñeiro (CFO)
Thanks, Justin, and good afternoon, everyone. Hopefully, you have all had a chance to read our earnings release that was issued this morning. As Justin mentioned, Q2 was an excellent quarter for us from a financial results perspective. Our revenue in the second quarter of 2020 increased 237% to a record $9.1 million from $2.7 million in the same year-ago quarter. PDFSimpli, our subsidiary brand, contributed net sales of $1.2 million, up 212% from the same year-ago quarter. The gross profit in the second quarter of 2020 increased 238% to $6.9 million, compared to $2 million in the same year-ago quarter.
Gross profit as a percentage of revenue in the second quarter of 2020 increased to 75.9% from 75.7% in the same year-ago quarter. Operating expenses in the second quarter of 2020 amounted to $10.1 million, up from $2.9 million in the same year-ago quarter. The increase was primarily due to increases of $6.2 million of selling and marketing expenses, as well as $966,000 in general and administrative expenses, $108,000 in other operating expenses, and $41,000 in development costs. The increase was partially offset by a decrease of $52,000 in customer service expenses.
Our net loss attributable to common stockholders for the second quarter of 2020 was $3.4 million, or negative $0.06 per share, as compared to a net loss attributable to common stockholders of $0.8 million, or negative $0.02 per share in the second quarter of 2019. The net loss for the second quarter of 2020 included certain non-cash or financing-related charges, such as interest expense of $140,000, amortization expenses of $182,000, and stock-based compensation expense of $439,000. Adjusted EBITDA, a non-GAAP term, totaled negative $2.6 million in the second quarter of 2020, compared to negative $413,000 in the same year-ago quarter. Now turning to our first half 2020 financial summary.
Our revenue in the first half of 2020 increased 148% to a record of $13.4 million from $5.4 million in the same year-ago period. PDFSimpli contributed net sales of $2.6 million, up 285% from the same year-ago quarter, period. Our gross profit in the first half of 2020 increased 132% to $9.4 million, compared to $4.1 million in the same year-ago period. Gross profit as a percentage of revenue in the first half of 2020 decreased to 70.5% from 75.3% in the same year-ago period.
The decrease was due to the shift in revenue mix to lower margin supplement products, as well as software sales that have a cost of sales that can fluctuate due to volatility and merchant processing costs. Operating expenses in the first half of 2020 amounted to $13.4 million, up from $5.5 million in the same year ago period. The increase was primarily due to increases of $6.9 million of selling and marketing expenses, as well as $1.8 million in general and administrative expenses, $146,000 in other operating expenses, and $74,000 in development costs. The increase was partially offset by a decrease of $11,000 in customer service expenses.
Our net loss attributable to common stockholders for the first half of 2020 was $5.8 million, or negative $0.10 per share, as compared to the net loss attributable to common stockholders of $1.5 million or negative $0.04 per share in the first half of 2019. The net loss for the first half of 2020 included also certain non-cash or financing-related charges, which is interest expenses of $242,000, amortization expenses of $460,000, financing transaction expense of $62,000, acceleration of debt discount of $500,000, inventory valuation adjustment of $769,000, and stock-based compensation expenses of $535,000.
Adjusted EBITDA, a non-GAAP term, showed a loss of $3.2 million in the first half of 2020, compared to a loss of $641,000 in the same year ago quarter. Turning to our balance sheet, cash was $336,000 on June thirtieth, 2020, as compared to $358,000 on March thirty-first, 2020. We believe our cash position, available funds, and current subscription projections provide the company with sufficient liquidity to meet our current needs. This wraps up our financial results, and now I'd like to turn back to Justin.
Justin Schreiber (CEO)
Thanks, Juan. As Juan discussed, the momentum that we gathered in Q1 continued to grow even stronger in Q2, and this acceleration has continued into the current third quarter. As we announced earlier this month, July revenues hit $3.6 million, more than 300% higher than July of last year. July sales indicate an annualized revenue run rate of $43.2 million, which also means we are well on track to meet our guide more than $40 million in revenue this year. The most exciting aspect of our growth in July was the growth of our recurring revenue from refill subscriptions, which increased more than 360% to $1.2 million. As the percentage of our revenue from subscriptions continue to grow, our profit margin also grows dramatically. Conversion Labs is a direct-to-consumer telemedicine company. This is why these numbers matter.
They show that we have the ability to expand into new verticals very quickly in a capital-efficient manner. Our brands have been built with one singular focus in mind: to make Conversion Labs the leading provider of quality healthcare in a virtual setting, to be front of mind whenever anyone thinks about telehealth. To this end, we continue to work closely with our physicians, advisors, and patients to ensure that we are providing the ultimate in quality care. Turning to our current brand portfolio, we currently have three telehealth brands, Shapiro MD, Rex MD, and SOS Rx, which respectively target hair loss, men's health, and emergency medication. To put our launch strategy into perspective, we initially launched in ED or erectile dysfunction, simply to prove out our ability to acquire customers in this very large and rapidly growing market.
Our success in the ED market validates the incredible skill set of our team and our technology platform. What we build at Conversion Labs is a platform technology that will enable us to quickly launch new telemedicine offers wherever the opportunity exists. The opportunity in this space is enormous and it's lasting, and we believe what we have shown you so far is only the very beginning of what is in store for Conversion Labs. Just like the early stages of the personal computer, the internet, and other rapidly growing disruptive technologies, there is a massive, unprecedented land grab taking place in telehealth, where there are massive, multi-billion dollar, virtually untapped market segments just waiting to be serviced by telemedicine offerings. Due to the readily apparent economies of scale, the opportunities in telehealth are really not much different than it was for the personal computer or the internet.
The largest players will eventually be the dominant forces that ultimately capture the lion's share of the addressable market. This is why in our roadmap for 2020, we have and are continuing to press our foot on the gas in order to become a leader in direct-to-consumer telehealth. 2020 has been an unprecedented year in so many ways, but it will ultimately be remembered for the COVID-19 pandemic. COVID-19 has served to hyper accelerate the adoption of telehealth by challenging Americans and everyone around the globe to rethink the way healthcare can be accessed. Given that 2020 is a breakout year for telehealth, over the next few quarters, we're looking to expand to still largely untapped telehealth markets. We plan to launch several new treatments under our Rex MD brand, expand into women's health, and are also looking at other exciting opportunities within telemedicine.
We believe that truly the sky is the limit here. We're driving this initiative through the continued and deliberate growth of our internal medical, technology, and customer acquisition infrastructure. This includes adding incredible people to our team, like Dr. Jeremy Fine and Dr. Jeff Toll, who both recently joined our advisory board. Reflecting the high quality of those who have joined Conversion Labs, Dr. Fine is an award-winning physician with more than 15 years of medical experience, innovation, and accomplishment. Dr. Toll is a leading health and wellness doctor who completed medical training at Cedars-Sinai Medical Center in Los Angeles, which ranks among the top 10 hospitals in the country. Medical experts like Dr. Fine and Dr. Toll can help guide and expand our portfolio of telemedicine brands and help advance our mission of becoming a leading player in telehealth.
Now, to provide an overview of what we are doing today to support our continued growth, I'd like to turn the call over to Stefan Galluppi, our Chief Technology and Operations Officer. Stefan? Thanks, Justin. Thank you to everyone that took the time as well to dial into this call. When we decided to target telehealth in 2019, we started by making significant investments needed to support our expansion into a new market. What's important to note is that our objective was not to launch as quickly as possible, otherwise, we would have launched much sooner than the end of last year. Our objective was to ensure that the infrastructure, investment, and development we made would support not just 2020, but Conversion Labs' growth and continued brand expansion for the next five years. Internally, this meant radically strengthening our technology, our compliance, and organizational structure.
While painful at times, we're glad we made the commitment, especially now more than ever, as it has enabled us to launch and aggressively grow our telehealth brands far larger and faster than we originally envisioned. Our platform is supported and driven by a team of digital marketing and brand experts, data analysts, designers, and engineers focused on building enduring brands. Our platform has been designed to allow us to efficiently launch telehealth offerings whenever we determine there is a market need. On the technology side, our proprietary IP allows us to easily expand into different categories, where our field-proven technology infrastructure enables our team to quickly build out effective acquisition funnels, as well as a marketing platform that also connects our brands to online pharmacies and physicians. It has been an integral part of our transition into a 100% telehealth business.
Internally, we are continuing to build out our in-house team of rockstar developers, as well as our marketing, finance, and customer support teams. We have been especially fortunate to have attracted incredible talent for every aspect of our company. Last but not least, we have also invested significantly into compliance. Due to the nature of telehealth, compliance is a front-of-mind goal to ensure that we are leading the way in delivering the best care and having the most compliant telemedicine infrastructure out there. Our Conversion Labs network of licensed telehealth physicians is now writing over 400 combined new and refill prescriptions a day, and this number continues to grow.
At this stage of growth, it is now all about gaining greater efficiency and scalability with key technology that supports our expanding telehealth brand portfolio, acquisition platforms, and provider networks, working towards our vision of creating a best-in-class quality of care in telehealth. This is why I and the rest of the Conversion Labs team are all really excited for this rollout of VeritasMD later this year. In May of this year, we secured an exclusive perpetual license in North America for online direct-to-consumer applications, along with a non-exclusive right globally. For the core technology that powers VeritasMD, the core platform that we acquired was developed in years of work by experts in telehealth, healthcare, and regulatory affairs. VeritasMD has been designed to connect state-licensed physicians and patients in a simple and efficient way, with features implemented to take the friction out of the telehealth process.
VeritasMD will make it easier than ever before for physicians to consult with patients and provide the quality care they need. This end-to-end telehealth technology is highly synergistic with our existing operational platform. Most importantly, it will transition us to a vertically integrated infrastructure, allowing us to develop and deliver innovative health and wellness products while servicing our customers all the way up the value chain. Thanks to our outstanding team, over the last several weeks, we've been further enhancing the platform with proprietary features and bespoke functionality for our telehealth brand. This integration is virtually complete, and we are now just awaiting Surescripts to approve its e-prescription functionalities, which we expect to receive in the next thirty days. Back to you, Justin. Thanks, Stefan. Next step, and I'm very excited about the launch of VeritasMD.
It will enable the streamlined rollout of exciting new telehealth products and brands, and particularly one we call Nava. We plan to provide more details about Nava in a future press release, but for now, I can say that Nava is one of the several telehealth brands we've been developing behind the scenes that targets the large market opportunity for women's health. Our telemedicine platform enables a blue ocean market strategy, you know, allowing us to quickly target untapped opportunities in the space. So what does this mean for our current telehealth brands? For RexMD, it means expanding beyond just erectile dysfunction medications and solidifying its presence as a leading men's health brand. We plan on accomplishing this by introducing additional prescription and proprietary over-the-counter products we've been developing, like additional sexual health offerings and primary care.
Initial product introductions will focus on sexual health in order to best leverage our growing customer base and to immediately expand our customer lifetime value. Now, for SOS Rx, which we launched earlier this year, with the help and guidance of our physician advisors, we are in the process of shifting the messaging and nature of the brand to a doctor consultation model, and one that addresses medical concerns in addition to disaster prophylaxis. This includes travel-related illnesses, illness preparedness, and others. Our launch of SOS Rx, unfortunately, coincided with the outbreak of COVID-19, which made it difficult to go to market with a disaster preparedness offering and hence our refocus of the brand. Finally, for Shapiro MD, we're continuing to build on our growing success as a leading telehealth brand for hair loss.
Following the formulation and launch of three products in the second quarter, we are currently in the process of filing new IP for three new products yet to be announced for the hair loss market segment. Two of these products are prescription telehealth offerings, and one is a proprietary over-the-counter product, specifically formulated by our physician to address postpartum hair loss. Now, what can our shareholders expect over the next six to twelve months? Our business strategy has always been more than simply about increasing sales and generating profits. Since our inception, we've been focused on building a portfolio of brands that can provide a robust and reliable recurring revenue stream. Today, we are seeing record growth for the number of customers on subscription, which without a doubt, is the most important component of our long-term profitability.
As the revenue generated by our repeat customers continues to scale, this will drive down our customer acquisition costs as a percentage of revenue, driving strong contribution to our margin and bottom line over the long term. Looking ahead over the next six to 12 months, we have a fairly clear view of what we believe Conversion Labs will look like. Rex MD will solidify its presence as a men's telehealth brand by launching up to six additional core men's health telemedicine offers. SOS Rx will transition from beyond the disaster space to everything from allergy, travel-related prophylactic prescription products and more. Also, over the next 12 months, we expect Shapiro MD to emerge as the industry's leading telehealth brand for both male and female hair loss. We'll accomplish this through the nationwide launch of personalized treatment options that complement our patented over-the-counter product portfolio.
We'll also have launched the female equivalent of Rex MD, which will offer a portfolio of lifestyle, telemedicine, products, and treatments for women. Finally, our majority-owned subsidiary, PDFSimpli, is growing tremendously. Thousands of new user registrations are being driven by the recent increase in online consumer behavior and remote working. Consider industry-wide, direct-to-consumer e-commerce sales are now expected to climb more than 24% to $17.8 billion just this year alone. While not part of our core telehealth business, PDFSimpli's unit economics are incredible, and it has experienced a massive acceleration in growth since the start of the year. Based on its growth trajectory in recent months, we believe we can aggressively scale this business over the next 12 months to reach at least a $10 million annual run rate or greater.
All in all, while the growth we have seen across the board has been tremendous, we believe we have only begun to scratch the surface of what Conversion Labs can accomplish. Given all these positive factors and trends, both internally and across our industry, we're still on track to meet our full year 2020 revenue outlook of more than $40 million. Meanwhile, we see Conversion Labs' telemedicine platform continuing to drive growth and new opportunities, and especially greater shareholder value over the months and years to come. Now, with that, I'd like to open the call to your questions. Orlando?
Operator (participant)
Thank you. And if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, please press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. Once again, as an additional reminder, that is star one, if you would like to ask a question. All right, and we'll take our first question from Michael Galantino with Chapman Davis. Michael, please go ahead, your line is open.
Michael Galantino (Analyst)
Yeah, hi, Justin. Great quarter. Congratulations on a great quarter. Growth exceeded our expectations. Quick question, you keep referring to the technology, the proprietary technology you guys have spent a year and a half developing. Could you talk a little bit about what makes your platform different? As you said, it's a land grab, and there's a number of other companies trying to tap into the market and just grab the lane in the land grab. Can you tell us a little bit about what makes your company different than the others?
Justin Schreiber (CEO)
Sure, could do that, Michael. I may let Stefan chime in as well, since this is his area of focus. But my perspective is that, you know, prior to our interest in telemedicine, you know, the company invested, you know, significant time, energy, and capital into building, you know, this incredible customer acquisition platform, right? And that's a combination of, you know, technology and human capital that we acquired, you know, since really we launched this business in 2016. And so, you know, I think we believe that the key, the winners in the telemedicine space, especially the direct-to-consumer telemedicine space, it's all about patient acquisition, right? Customer acquisition. And we built this company, you know, through that lens.
And so I would just say that, you know, my belief is that, you know, the technology and the platform that we have is really very kind of customer, you know, patient acquisition centric, right? Which over time enables us to, you know, scale the business very rapidly, manage our customer acquisition costs, you know, quickly pivot into other areas. Where, you know, I think there are other platforms in the industry that are more built with, like, from a, you know, kind of pharmacy perspective, which we have as well, right? All the same technology as, you know, very similar technology to everybody else. But I think it's our focus on, you know, customer and patient acquisition that really defines Conversion Labs. Stefan, would you like to add anything to that? Yes. I mean, certainly.
I mean, really on the acquisition side, right? One of the really core things is personalizing the process, the sales funnels for various users who we're targeting. And it really falls in line with using that data at scale to really be able to heavily remarket customers through SMS, through email, through our call center, to ultimately convert, you know, prospects to patients. And then the other side to that, too, is retention focused, which is bringing a customer in and then being able to cross-sell them onto other Rx medications or other OTC products. That's really the two core focuses. Got it. Thank you.
Operator (participant)
We'll take our next question from John Formicola with Performance Capital.
John Formicola (Analyst)
Actually, my question was just answered, and I want to congratulate Justin and the whole board and team there for doing what they've done to date. It's been a long time since I've even communicated, so I'll just pass on. Congratulations, and I'll catch up with Justin another time. Congratulations.
Justin Schreiber (CEO)
John, thank you very much. Appreciate your support.
John Formicola (Analyst)
You're very welcome. Keep it going. God bless. So I have, and bye-bye.
Operator (participant)
Thank you. And ladies and gentlemen, if you do find your question has been answered, you may hit star two to remove yourself from the queue. And next, we'll hear from Ben Patton with Toronto Investment Authority.
Ben Patton (Analyst)
Hi. Yeah, great quarter, guys. My question is more about the recurring revenue. I think you said you guys hit about $1.2 million in July. What percentage of, I guess, the customers did this represent as far as, you know, the total amount of customers? So $1.2 million, is that 25% of the customers, you know, re-upping for a second month, or is it 60%? I guess that's what I'm trying to back into as far as what $1.2 million correlate to as far as retention with those customers from the previous month.
Justin Schreiber (CEO)
Yeah. Thank you. We haven't spoken a lot specifically on the unit economics other than we made a point to say that they're very good, and that was primarily for competitive reasons. Stefan, would you like to comment on... You know, would you like, you know, are you able to provide a kind of high level response to that? You know, the number, you know, the number of customers that you know move from initial to second cycle? I mean, I could provide, I mean, we haven't put anything publicly out to date. I mean, one comment would be that the models that we've projected were certainly significantly above where our forecasts have been.
So, on vintages, looking at data from when we first launched this. Really, data would be from January. We're certainly ahead of what we projected. So I think what we'd like to say, and apologies, but we're, you know, just really for competitive reasons, we haven't kind of disclosed a lot of details on the unit economics. But I think what we're comfortable saying is, the unit economics are great. You know, we feel we're providing exceptional, you know, treatment and customer service. And as you know, 100% of these customers on the telemedicine side of the business are on a subscription. For most, you know, the dissatisfaction rate is very low.
You know, these things generally work for everybody that uses them. You know, the unit economics are very strong, and we'll provide as much detail as possible on that, you know, in the future when we're comfortable disclosing that information.
Ben Patton (Analyst)
Okay. Thank you, guys.
Justin Schreiber (CEO)
You're welcome.
Operator (participant)
Up next, we'll take a question from Stephen Gart with John Locke.
Steven Gart (Analyst)
Hey, guys. Again, I guess this makes number four for congrats on a great quarter. I'm not, I'm new to the company, so I probably, I'm asking a little on the naive side, but I just want to know if you could, maybe to the degree you can, talk to the cadence of subscription growth over Q2 and maybe into the beginning of Q3. And considering you're growing top line at north of 200% this year, is it too early to provide some kind of preliminary sense or guidance for 2021 rev? And then my final question would be: Do you have any, can you talk about any plans for uplisting to an exchange or anything like that as you, as you gain this kind of momentum on the top line? Thank you.
Justin Schreiber (CEO)
Sure. Yeah, sure. Well, I think, like, it's very difficult these days, right, to... You know, to trade on the over-the-counter market, and, you know, especially with many investors can't buy the security. So it's definitely a near-term priority for the company, to uplist to a senior exchange in the US. Clearly, from a market cap standpoint, we're where we need to be, you know, and we also have a couple of years of strong revenue. So the share price requirement for us is lower, you know, than it would be for many companies that are gonna uplist. So that's a very big, you know, priority for the company that we'd like to get done as soon as possible.
As far as guidance for next year, you know, we haven't really put formal guidance out there, but, you know, I think that it would be- yeah, so we haven't put formal guidance out there, but I'll just say this: You know, given kind of where we're at right now, assuming that the current trends continue, and something doesn't go drastically wrong, which we think is highly unlikely, it'd be pretty tough for us, given our current run rate, to not be, you know, at least in the, you know, $75-100 million range in revenue next year, right? Just because of the, you know, as you-- you know, it's a subscription business. We continue to onboard a large, and acquire a large number of subscription customers every day. So these things grow very quickly.
I would just say, you know, forget my kind of forecast for next year. Go look at how quickly, you know, like, Hims has grown, right, which is a lot of information out there. Look at Ro, right? I mean, how quickly Ro has grown from, you know, sub-$50 million run rate to $250 million. So I would, you know, I would say this, I would tell you those stats, I mean, we have a very similar business model. I mean, if you think about it from a, if you think about, like, any subscription, you look at any business model, right, where you have a great product that customers like, and everybody's on subscription, you know, kind of the Dollar Shave Club type of model. I mean, the growth rates for these things don't change.
And if you think about what we're selling, we're offering incredible healthcare to people in their home, which they need, which almost always works. Why would you... You know what I mean? Why would you cancel? I guess some people might cancel and shift to, like, a lower-priced product, but otherwise, you've got a great doctor. Why would you that you really like, and, you know, there's no real reason to switch. So we think this thing is gonna scale very rapidly, and we'll definitely get some projections out there in writing.
Steven Gart (Analyst)
I'm personally in the same position. I'm about to look into signing after to obtain my current doctor. Just one quick question: Are you seeing, so it was my, part of my original question, are you seeing sequential monthly revenue growth from Q2 and into Q3? And if so, do you see it sequentially going up the rest of the year, or is it comfortable in this, you know, $3 million-$4 million range per month?
Justin Schreiber (CEO)
I think it. Well, it has to go up for us to hit our, you know, the numbers that we've, you know, the estimate that we've put out for the year. So, I mean, the reality is, you know, acquisition of customers online can fluctuate over a couple week or a month time period.
Steven Gart (Analyst)
Mm-hmm.
Justin Schreiber (CEO)
But overall, like, as we have a subscription business, that's just, you know, growing, right? Because every day, we're just adding more and more people on subscription. So yeah, we do see the numbers certainly over time growing. They can go, you know, up and down, you know, quite significantly for a week or two here, right? So we'll, I mean, every single month, will we see massive growth? I don't know that we're comfortable making that statement just because of the nature of this business. It goes up and down, but certainly over time, like quarter over quarter, you know, we're gonna continue to build this high-margin subscription component of the business, and we're certainly gonna continue to acquire customers.
We're gonna be launching new products both on the, you know, telemedicine side and on the, you know, the over-the-counter side. And so, yeah, I think we're gonna definitely continue to see growth quarter over quarter.
Steven Gart (Analyst)
All right. And then just to redirect to the uplisting, do you see that as a 2020 event?
Justin Schreiber (CEO)
I hope so. I hope so. I mean, I can tell you that we're extremely well positioned to you know, get that done and bring in some very high quality long-term capital. You know, the capital that we're talking to is just some of the highest quality capital sources, you know, you can find. And obviously, I think a lot of people know that the company could have gone out and done like a very quick deal, which might not have been good for the market. And, you know, we're really doing the right thing for shareholders.
You know, I've made a commitment to when I talk to people and happy to say in this forum, right, like one of the main reasons we've seen this great increase in value of our equity is because we've made smart capital markets decisions, and we're gonna continue to do that. So in a perfect world, we find, you know, an incredible investor that's very long term and up with us very quickly. If it takes me a couple of extra months just because I have to find the right investor or get this done the right way, that's a possibility. But it is. I mean, it's one of my biggest, one of our biggest priorities.
Steven Gart (Analyst)
Okay. And then just kind of follow up with your hiring effort, one final one. Thoughts in terms of target gross margin, near, medium, long term. Looks like you're in that 70%-75% range. Do you see it staying there as you roll out the additional products and make more customer acquisitions and grow? Or, you know, how do you see that shaping up?
Justin Schreiber (CEO)
Stefan, would you like to comment on that?
Juan Manuel Piñeiro (CFO)
Yes, I can definitely comment on that. So regarding some of the costs of the products that we sell, when it comes to shipping and merchant processing costs, we really do not expect any sort of fluctuation on those fronts. The cost of products may vary depending on the product that we are actually selling. If it's a premium product, obviously the cost of the product is going to be higher, therefore, affecting the margins. And there's room for fluctuation, but we have a strong focus on keeping in between 70%-80%. We would like to be closer to 80%. We're at 75%, and we're happy there, but the fluctuation that we could see in regards to the margins would be specific to the products.
Steven Gart (Analyst)
Great. Thank you so much for that.
Justin Schreiber (CEO)
I think the answer is not only a bigger question. Yeah, the Veritas platform as well. Once we internalize the physician network on board, our own physicians as well, we should significantly bring down you know, our costs there. So that will certainly help the gross margin.
Steven Gart (Analyst)
Excellent. Thanks so much, and again, congratulations on what you can do. A great year.
Justin Schreiber (CEO)
Yeah. Thank you.
Juan Manuel Piñeiro (CFO)
Thank you.
Steven Gart (Analyst)
Thank you.
Operator (participant)
Next, we'll take a question from Jonathan Alvarado, a private investor.
Hi. For the VeritasMD product, does that require a lot more investment to launch that, or is that pretty much done?
Justin Schreiber (CEO)
No, so we're in the final stages of the development there. All the features that we really took in it, we built out from the initial product that we acquired, really are heavily focused on more of the asynchronous consults and making the system robust so that it can support scalability anywhere from, you know, 1,000 plus consults a day, reporting and all the tools that we need to just be more efficient at scale, but that's in the final stages of development. The plan is to be live in 47 states within 60 days of that.
And then, I noticed that selling and marketing has increased about four times. Is that going to continue that same pace of increase, or is that?
Look, it's all about the unit economics. So, you know, initially with the telemedicine business, you know, we go into the red a little bit up front because we have to acquire the customer, and then, you know, we have a consult cost. But, you know, as the subscription business builds over time, you know, the contribution margin increases dramatically, right? So, you know, to answer your question, we continue to acquire, we expect. But if we can stay on the current trajectory, you know, the actual acquisition burn rate in the company will decrease significantly. Now, the one thing that I will add to that is, look, if we can choose between if we know we have incredible unit economics, right?
We could have to choose, let's just say in the fourth quarter, between being profitable or, you know, we have access to very inexpensive capital, and we know that we can take it and, you know, acquire another 10,000 or whatever, 25,000 customers. If the unit economics are proven and we have access to inexpensive capital, that makes sense for shareholders to take, you know, we're going to choose, we're going to choose growth, right, over showing profitability. Our perspective on this is we just, we want to acquire as many patients as possible. We've proven out the unit economics for our business already. We know we have a solid and, you know, and profitable business model. There's no doubt about that.
So I mean, it's really tough to say when we actually reach profitability, but the name of the game for the company is, you know, just continuing to launch new products in telehealth. We need to build market share, and that's how we will create them. That's how we will maximize shareholder value.
John Formicola (Analyst)
I just had a question about the LaserCap. I was just wondering how that was going.
Justin Schreiber (CEO)
The LaserCap's good. It's, you know, it's- I don't have exact numbers to share with you on that, but, you know, it's an extension, right? So we, I mean, we sell LaserCaps on an ongoing basis. You know, a lot of people that buy our Shapiro MD hair loss products, you know, they choose to purchase the LaserCap as well. We also know that the opportunity on Amazon is pretty significant, based on what some of our peers are doing with that product. So we've been in the process of launching this with Amazon. It's taking longer than we thought. But, you know, I would say it's been okay. Like, it's a profitable product, and, we're glad that we have it as part of the portfolio.
John Formicola (Analyst)
Great, thanks.
Justin Schreiber (CEO)
You're welcome.
Operator (participant)
Next up, we'll have a question from Robert Branceford, a private investor.
Hey, Justin. Congratulations on a great year so far.
Justin Schreiber (CEO)
Thanks, Robert. Really appreciate it. Thanks for dialing the call. Good to hear your voice.
Sure, sure. Same here. Thank you. So I went through the queue kind of quickly this weekend, but it appeared that there was an estimate of about $4 million of liquidity needs, I think, by the end of the year. And it also looked like there might be about $2 million that would be possible warrant exercise proceeds. Can you comment on that? And I know you're reluctant to forecast being positive cash flow, but what the plan to bridge from where we are now to being free cash flow positive?
Yeah, we did. So, yeah. Yeah, happy to answer both those, and actually, I'm glad to talk about the warrant. We did have a warrant exercise, you know, over the last couple weeks, we had some shareholders that exercised warrant, which was very helpful to the company. Kinda helps to clean up the capital structure and bring in some cash. So, I think that we're probably all in, you know, I think that will probably bring in, you know, for a ballpark number around $2 million. And, you know, so look, the company. Capital for this company is all about the amount of capital that we need, Robert, is all about how quickly we want to grow the business.
It goes back to what I just said in my prior answer. I mean, we know we have great unit economics. We know that we spend X, we get Y, and Y is much bigger than X. You know, I mean, I'm sure we could probably get by and even stay on the current run rate with a very small amount of money, but, I mean, we don't. We think we have something so special here that if we can scale it up much more aggressively, it makes more sense. And so it goes back to, again, like, our focus is on figuring out a way to communicate to the street, you know, that we have these great unit economics, and it makes sense to just continue growing this business because these patients are going to be incredibly valuable, right?
You know, they have family members, and they, you know, and just because someone's in hair loss, if we have a skincare telemedicine offering, or we have another, you know, women's health product, or birth control offering or diagnostic tests, you know, I mean, or primary care, right? It's just very, very, very valuable, right? We just wanna continue to do whatever we can to acquire patients if we know that those economics are great or as good as they are. I mean, the answer to your question is that the opportunity is, as we said, probably twenty times in the call, the opportunity out there right now in this space is enormous.
Even with, even with, you know, some of the big players that most people know about and are familiar with, it's just incredible. This is gonna change so many different indications, you know, within healthcare. And even just the... I mean, forget all the other indications, but even just the lifestyle, like men's health, just the men's health aspect, it's a multibillion-dollar opportunity for us, you know, alone. And so we're gonna opportunistically bring in capital that we believe is accretive to shareholders and makes sense, right? And I guess the only thing that I'd really like to reinforce is like we're a management team that cares about the equity, right? I mean, we don't. There's no big salaries in this company. You know, we work for our equity that we have in the business.
When we make decisions, it's not a decision like, "Hey, let's just grab twenty-five million dollars because we can, because our stock is very liquid." You know what I mean? And then we know we're gonna get a paycheck for the next five years. But our decisions are like, "Well, if we do a deal here, how much equity are we gonna sell? What's the cost of capital? And if we deploy this capital in, you know, in our business, what is the return for shareholders, right?" And of which we're one of the biggest. I'm sorry that's long-winded, but that's just kind of my you know from the heart my perspective on it.
Thanks for the answer. I appreciate it. Just one quick other question. The revenue run rate is obviously gonna be raising some eyebrows. Are there any natural consolidators out there in this new growth sector of telemedicine?
... I'm sure there are. I mean, I think, I think perhaps the most natural consolidators are, if you think about how this is changing, right? Telehealth is changing the business model for even like large pharma and medical device companies, right? I mean, there's thousands of people out in the field that are very expensive, and you know what I mean? You're visiting doctors. Like, when you think about how telemedicine can disrupt a lot of these, you know, very big revenue streams. And I can tell you that all these pharmaceutical executives now are looking at this going: "How do we do this?" Where would you start if you were one of these companies, right, you had a multi-billion dollar revenue stream? You couldn't build what we have in a year. You know what I mean?
I mean, it's, you know, it would take real time and there'd be real risk that you build this up. Can you acquire the right people to do what we've proven we can do? So, you know, the answer is really difficult. And why take that risk when you could just go out and buy a company like Conversion Labs that has a proven platform and a team that you can lock up for a few years that you know is best in class? So I think there's a ton of people out there that would like to build, to buy, you know, quality, this type of platform that we're building.
You know, I think they're a little, you know, I think it's a little early right now, but, you know, I think as we scale this thing and we're, you know, closer to or at a $100 million a year run rate, I think it's pretty interesting, right? Especially once we have a couple more products out there. We prove that, you know, we're not just doing ED, but we're doing this, you know, in other, with other indications. And then we also, the VeritasMD platform, once we get that up and running, I think that adds an incredible amount of value, you know, to the company once we prove that out, which, you know, Stefan's done a great job on and that's right around the corner.
A lot of really fortuitous things have happened to this company. Just to give you an example of like this VeritasMD, I mean, so that platform was built, and this is what we were told by, let me say, one of the founders of a very, very large telehealth company that everybody knows. It was built for another company that was providing a solution to doctors, you know, to basically convert their practice into a telehealth business. You know, almost $2 million was put into this platform over years and years and years of development and regulatory experts and like, you know, great minds working on this thing.
You know, we were able to buy this thing for you know, some options in the company, and I think it was a sub-$200,000 cash payment. I can tell you that some of our peers, I mean, my guess would be that they spent at a minimum millions of dollars, if not $5 million or $10 million, to build this thing. I mean, it's very, very valuable, and it's just the stuff that you know, you can hire developers, but as anybody knows that's managed a large and complicated project like this, you have to get these things done and work out the bugs overnight.
Again, and Stefan mentioned this earlier, but building this vertically integrated platform where we have everything that somebody needs to launch a nationwide telemedicine offer, and it's proven we can do it, I think it's really valuable.
Thanks, Justin. Again, congratulations to you and the team on a great year. Keep up the good work.
Thank you.
Thank you.
Thank you, Robert.
Operator (participant)
And up next, we'll hear from Joseph Withrow, a private investor.
Thank you. Bravo on your year-to-date for two thousand and twenty. Just, a two-part question. Have you considered talking with corporations about making this an employee benefit for their employees to lower the, the cost to capture new patients? And the second part of my question, with your partnership with GoGoMeds.com, have you considered in, in future time, not near future, but looking at, adding to the same household for existing patients, pet, pet meds and building a veterinarian network?
Justin Schreiber (CEO)
Yeah. Thanks. So I think in response to your first question, I mean, going after, you know, large employers, which are, you know, probably, you know, self-insured, is more of a Teladoc type of business model. We just believe we have a big opportunity in the direct response telemedicine space, you know, an enormous opportunity. We just, we want to stay focused and, you know, if we can just, you know, build some market share there, you know, it doesn't really make sense for us right now to, to, you know, look at the employer groups, employers and trying to, you know, compete in that space. Your second question as far as the pet space goes, I've actually personally done a lot of work, or done a lot of research in this space. I don't really know.
It's very different regulatory landscapes than with humans. And we walk the pet space. One of our investors is actually a very, very, very large direct response pet pet care supplement company. And so the big problem with that space is you have to, you know, you have to in most states, the veterinarian has to actually physically examine the pet in person in order to write a script. And veterinarians generate a large portion of their income from the sale of prescription medications. So it's kind of a political issue where right now it's pretty tough to... From what I understand, it's pretty tough to work in that space.
So we're open to a longer term of partnering with, you know, with a company that we're already been a great investor and supportive of our business, but right now, we don't have any plans to enter that space. Great space, though.
... Thank you. And on the first part, the first question, I was thinking more of small and possibly medium-sized businesses, because they just don't have employee benefits to offer around the health sector. So if, you know, hair loss or different things that you could provide and they're not providing anything, it might be something to them that they offer, you know, annually to their employees for small and possibly medium-sized businesses. But I appreciate your answers. Thank you.
Yeah. Thanks. We'll keep it in mind. We appreciate the thought.
Operator (participant)
Great, and up next, we'll hear from Antonio Bautista, a private investor.
Justin Schreiber (CEO)
Hi, Antonio.
Yes, I was on mute. Apologies. Congratulations for a great quarter. I think, your numbers look excellent and a couple of questions from my end, and I think one of them you already addressed, but I didn't hear the time horizon. Hopefully, listing on Nasdaq, is that something that you guys are looking into and do you have a time horizon?
I don't like to put out a time horizon, but the answer is we'd like to get this in your exchange as soon as possible. So, would I be able to-
This year or next year?
I would hope for this year.
Okay, very good.
But again, I know there's a few things that have to happen. The most important is just, you know, putting the, you know, the right capital in the company and making sure we meet the shareholders' equity requirement for Nasdaq.
Makes sense. The other question would be, do you foresee raising capital through common shares, and do you think that would have an impact in shareholder value?
I think we have to, if we want to list on a senior exchange, we have to do an equity deal, right? I mean, the company actually has a lot of debt that's available to it, which is an expense, and this comes down to, like, you know, the right strategy. So I think the ideal strategy would be we bring in an incredible, you know, blue chip investor or blue chip bank that is a long-term investor that, you know, isn't just in this thing to, you know, sell the stock and make 30% on their money in 60 days, right?
So, you know, the perfect scenario would be us find a high quality long-term investor, do the right deal for the company, you know, that results in our shares appreciating in value, not depreciating in an ideal scenario, and then list on the Nasdaq. I mean, again, if we didn't have the right capital available to us, I mean, we're not going to do something- we'd almost tend to do something that, you know, incredibly diluted for shareholders, right? And it's gonna just put a lot of near-term, you know, pressure on the share price. We really want to think long term here and bring in the right money and get a listing done at the same time.
Thanks. Those are the only two questions. I just wanted to commend you guys for the way you manage the business and the lack of bombastic statements, which I think is welcome in a world where everybody talks too much across too little. So keep up the good work, and thank you for your answers and your time.
Thank you very much. I appreciate being a shareholder.
Operator (participant)
Up next, we'll take a question from Paul Ragosta, a private investor.
Good afternoon, everybody. I have been kind of affiliated with at least the predecessor company, which is called Immudyne. I imagine there could be a lot of people on this call that remember that, and for a long time, I didn't even look at that stock price because I didn't even count it as part of my portfolio. Recently, you've all got our attention, obviously, with the increase in the stock price, which has been nice, but, hopefully, you make us all wealthier than we are as we're talking at some point, but I, some of these questions you might have answered, so you can give me the very cliff note answer. I'm fine with that, and I can read into it myself later, but my general question is, is this revenue sustainable?
Justin Schreiber (CEO)
The answer is yes.
Okay.
100%.
Now, marketing costs were quite high, and you might have answered this. I apologize if I'm asking you something you've already answered, but why are those costs so high? Is it structural in your business model, your financial model?
Marketing costs are high because, you know, again, we have to spend. Remember, we're a direct response company, right? So we have a significant expense upfront to acquire this customer that has a much greater lifetime value than what we pay to acquire the customer. So, you know, we think over time, we'll actually get what we call our customer acquisition costs. We think they'll, you know, we think that by expanding the places where we're running advertisements, we think that, you know, we'll actually, we could lower those acquisition costs. But, you know, right now they're always going to be high upfront. We also have to pay for the physician consultation, you know, upfront. So the whole thing with this business is what's the retention like, right?
Once someone, you know, sees one of our doctors and is prescribed a prescription medication and maybe first over-the-counter product, how long do they continue to, you know, to use that product? And, you know, right now we're, you know, we're six, seven months, I guess almost eight months, eight or nine months now into this. But, you know, the vintage data that we're seeing is really good. You know, and we can, you know, we haven't shared it in detail for competitive reasons, but, you know, we again, we're fine with high acquisition costs, right? As long as we know that, we're making a lot more money than what we, you know, than what we pay to acquire the customer down the road.
But is there a direct relationship between those acquisition costs and revenues?
Hundred percent.
So is there a point where? Well, maybe I'll put it to you this way. What type of revenue does this company need to actually have an EPS, to have an earnings per share? What type of revenue do you have to achieve? Based on what I'm not speculating on what you might get, but under the present model, with your expenses-
I think the easiest way to answer your question is, I mean, if we stop acquiring customers tomorrow, you know, the company would have earnings. It's just the only reason that we don't have earnings is because we continue to grow the business and acquire new customers. And when we do that, you know, we go into the red upfront. And so, you know, it really just depends on the growth rate of the business and how aggressively we acquire. That's what's gonna determine, you know, when we actually achieve profitability.
But I can tell you that, you know, we're, the company's, you know, again, I, we haven't put out guidance on profitability because we don't think it's, you know, we, we don't, we don't think it's the most important metric for, you know, for shareholders and ourselves to, to focus on, right? You know, we're, we're more concerned with are we, you know, what are we, what are we paying to acquire customers? And do we have great unit, unit economics behind those customers? And just to come back to your first question, we're not seeing significant growth in our, in our fixed overhead, right? I mean, this, this is a technology platform in many ways, and it has. I mean, we're using to provide medical treatment and sell, you know, patented and proprietary products to consumers.
It scales like a SaaS business, right? So we have this core team and this kind of fixed overhead obviously grows a little bit, but other than maybe customer service and call center, like, as we really scale this thing, you know, the variable acquisition costs will scale as the business grows, but you also have subscription revenue, like really, you know, catching up. So, yeah, I think the answer to your question is, like, it's very possible, right, that near term we see, you know, profitability with the company, you know, even this year, we've seen net profitability. But, you know, again, if, you know, we need to look at the opportunity on the growth side, right? And what our cost of capital is and make kind of the right decision there.
Sure. As far as raising capital, I apologize if you've already mentioned this. Do you see the need to raise to a public offering or to put out yet more stock?
I mean, I really... I'd like to just not get, you know, I think it's unwise-
No, no, but-
Look, I'll go back to what I said previously, right? We're first and foremost holders of the common equity of this company. You know, we need to do an equity offering in order to get to a senior exchange. But if we wanted to do something that was gonna be a bad deal for shareholders, we could have done it already. So we're very, very focused on, you know, doing a deal that adds value to shareholders and that really propels long-term growth, and that brings in a long-term investor. And I think, look, I think you've seen this, right? For the legacy, I mean, we sold the legacy assets out of this company in 2018. You know what I mean? We've gone...
You know, we feel that we've done, you know, an exceptional job, you know, protecting the capital structure, especially given that we kind of started with a clean slate and brought in a whole new team of people. And, you know, we tried to incentivize them appropriately, but also like, really, you know, we really tried always, so did the board, to do the right thing for, you know, all these legacy shareholders. And we're gonna continue to, you know, we really appreciate, you know, all of our shareholders. And I mean, we're going to continue to do what's in your best interest, and we're the biggest shareholders.
So Kevin and I and Juan and the whole team, I mean, just, look, all I'll say to you is we will do everything possible to protect the capital structure and maximize value for shareholders. And I mean, look, we believe we can build a really big business here. I mean, the opportunity, and not just words, right? I mean, if we can execute a little bit of dilution here by bringing a long-term investor that gets us to a senior exchange, which, by the way, would greatly enhance the value of every one of our shares, I mean, it's a no-brainer. So that, that's what we're focused on doing.
Great. Well, thank you. I'm sorry to monopolize time. I know people have other questions, and I think things are promising, and I'm glad I participated in the call. Thank you.
Thank you. Appreciate your support.
Operator (participant)
At this time, this concludes our question and answer session. I'd now like to turn the call back over to Mr. Schreiber. Sir, please go ahead.
Justin Schreiber (CEO)
... Thanks everyone for attending our call today. Thanks especially to our shareholders, who have joined us during the most exciting time of our company's history, and be well and stay healthy. Orlando, please go ahead and wrap up the call.
Operator (participant)
Thank you, ladies and gentlemen. Now, before we conclude today's call, I would like to provide the company's safe harbor statements that include important cautions regarding forward-looking statements made during today's call. The information that the company has provided in this conference call includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things, the company's plans, strategies, and prospects, both business and financial. Although the company believes that its plans, intentions, and expectations reflected in or suggested by these forward-looking statements are reasonable, the company cannot assure you that it will achieve or realize these plans, intentions, or expectations. Forward-looking statements are inherently subject to risks, uncertainties, and assumptions.
Many of the forward-looking statements made during this conference call may be identified by the use of forward-looking words such as believe, expect, anticipate, should, planned, will, may, intend, estimated, and potential, among others. Important factors that could cause actual results to differ materially from the forward-looking statements made during this conference call include market conditions and those set forth in reports or documents that the company files from time to time with the United States Securities and Exchange Commission. All forward-looking statements attributable to Conversion Labs, Inc., or a person acting on its behalf, are expressly qualified in their entirety by this cautionary language. Before we end today's conference call, I would like to remind everyone that this call will be available for replay starting later this evening and running through August thirty-first.
Please refer to today's earnings release for dialing replay instructions available via the company's website at www.conversionlabs.com. Thank you for joining us today. This concludes the conference call. You may now disconnect.