LifeMD - Q2 2024
August 7, 2024
Transcript
Operator (participant)
Good afternoon. Thank you for joining us today to discuss LifeMD's results for the second quarter, ended June 30, 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 question and answer session. Before we begin, I'd 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, August 7, 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 those 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 (Chairman and CEO)
Thank you, and good afternoon, everyone. After the market closed, we issued a press release announcing our second quarter financial results and posted an updated corporate presentation on our website at ir.lifemd.com. During the quarter, the performance of LifeMD's core telehealth business was very strong, led by our GLP-1 weight management offering. This business achieved 67% year-over-year revenue growth, well surpassing our expectations. This business also achieved positive Adjusted EBITDA one quarter earlier than guidance. We are pleased with the results from our core healthcare business during the quarter, and for the year, we expect continued outperformance on both top and bottom-line metrics. WorkSimpli's performance was pressured in the second quarter due to a tougher than expected advertising environment, coupled with some executional missteps from the business.
These have since been addressed, and we've begun to see improvements in the sign-up rates and advertising efficiency, which will translate to improved bottom-line performance in the back half of 2024, with WorkSimpli expected to return to peak monthly run rate EBITDA by the end of 2024. On a consolidated basis, we exceeded our expectations for revenue and met our expectations for adjusted EBITDA, both driven by telehealth performance. However, the impact on adjusted EBITDA from WorkSimpli's first half results drove our decision to revise consolidated EBITDA guidance. We don't expect WorkSimpli to have a material impact on our consolidated revenue performance for the year, nor our long-term financial performance. Additionally, even with WorkSimpli's performance in the first half of the year, LifeMD still generated positive net cash flow on a consolidated basis.
This reflects the strength of our core telehealth business, which will be the driving force for the company's future revenue and profit growth. Our long-term objective continues to be to divest WorkSimpli in a way that benefits shareholders, and we continue to regularly distribute WorkSimpli's excess cash to its shareholders, of which LifeMD is the majority holder. As we continue to capitalize on the tremendous market potential for our core telehealth operation, we remain focused on the following key areas: one, continued expansion of our comprehensive weight management offering. two, development of new and enhanced infrastructure capabilities, including the initial acceptance of commercial insurance. And three, expansion of our Rex MD brand. Our weight management offering continued to perform above expectations, with revenue up 82% sequentially versus the first quarter of 2024.
During Q2, we added nearly 20,000 new weight management patients, finishing the quarter at just over 60,000 patient subscribers. We continued to average over 400 new signups per day, with robust unit economics that largely broke even on a day one cash basis. Retention continued to improve, with our most recent cohort showing a 400-500 basis point improvement in six-month retention rates for patients going on therapy. We continue to see growing success in getting patients approved for branded therapies, with approximately 50% approval rates for Zepbound and Wegovy prior authorizations. This figure is up nearly 700 basis points over the last month. We expect this metric, as well as overall prior auth approval rates, to continue to improve over time and are actively implementing work streams and investing in third-party resources to drive this.
Importantly, the bulk of our weight management revenue continues to come from clinical services, and we continue to offer our patients access to both branded therapies and, if branded therapies are not accessible, high-quality, trusted, compounded options. I continue to believe that this business model and the holistic care services we provide with it, not only provides a differentiated patient experience, but also ensures a model that is durable and adaptable to the evolving needs of the GLP-1 and medically supported weight loss markets. During the second quarter, we rolled out a collaboration with Withings to integrate their smart devices, including scales and blood pressure monitors, into our weight management offering, further supporting our affiliate medical group in providing patients with the highest level of fully integrated virtual care.
This quarter, we expect to provide additional updates on new offerings and capabilities we are rolling out as part of our weight management program. We are also committing significant resources to improving the comprehensiveness of our weight management offering. We don't want to be a platform that patients use solely to access prescription medications. We want to be a platform that helps people access transformational and long-term healthcare services. In the case of our weight management program, this means teaching our patients what it means to be metabolically healthy, how to eat nutritiously, the dangers of refined sugar and ultra-processed foods, and the importance of exercise, sleep, and mental health.
We are using our personalized treatment plans, AI capabilities, in-home tools, and our mobile applications to intelligently educate and provide timely reminders and support to our patient population on all of these lifestyle and diet components of a metabolically healthy person. We also have a strong partnership with OPTAVIA, one of the leading coaching and diet companies in the country, that we believe will be appropriate for a segment of our population. While much of what I just mentioned is still in development, we are committed to having the most comprehensive platform in America for weight management by the end of this calendar year. I'm personally very passionate about this, and I'm excited to keep you updated on our progress in the coming quarters in this area.
During the second quarter, we also made significant progress in expanding our capabilities, notably launching the first steps of our commercial insurance program and integrating AI within our patient support and clinical operations. In June, we began accepting commercial insurance following an extensive build-out of technology, compliance, and revenue cycle management capabilities to support this offering effectively and compliantly. While patient volumes are still small, we plan to continue our phased expansion in additional states with the goal of having broad nationwide coverage. Additionally, we are enrolled in Medicare and expect to launch this offering after gaining more scale with private payers. As discussed on prior calls, AI is a large initiative for us. We've already begun to leverage this technology across our, our data, and most recently rolled it out to support our care and provider communications for routine tasks.
I'm excited to share some significant progress in this area. In the month of July alone, we utilized over one billion tokens in our AI systems to assist providers and support staff, service messages ranging from care, coverage, order fulfillment, and more. We've implemented an advanced AI-powered system for message classification and routing. This system efficiently categorizes incoming communications and directs them to the appropriate departments or individuals, which has significantly improved our response efficiency. We've also developed specialized AI assistance for our providers, medical assistants, and support staff. Thanks to these initiatives, we've seen a dramatic improvement in our average response time. In fact, we've achieved a 200% improvement, which means we're now able to address patient inquiries and concerns three times faster than before. These AI-driven improvements are not just about efficiency, they're also about enhancing the quality of care we provide.
By freeing up our medical professionals from routine tasks, we're allowing them to focus more on their number one priority of delivering incredible care and creating an amazing experience for patients that choose to use our platform for their healthcare. Additionally, I am pleased to announce that we are making significant progress in the build-out of our in-house 50-state pharmacy. This past quarter, we recruited an exceptional team of pharmacists and support personnel that have deep experience managing large commercial and compounding pharmacies. We expect our pharmacy to be licensed this month and to be fully operational in the fourth quarter of this year. Once online, we will have the capabilities to handle both mail order and nonsterile compounding, as well as integrating our existing distribution center operations within the pharmacy.
We expect to realize some gross margin benefit from this initiative in 2025, as well as more efficient distribution, shorter fulfillment times, and enhanced nimbleness as we expand into new product and service areas. Lastly, Rex MD continues to be a source of steady growth and high-margin revenue for LifeMD. For the first time in several years, we launched new indications under the Rex MD umbrella. These include weight management and hormone replacement therapy, or HRT treatments. I'm pleased to say that we expect to soft launch our HRT program later this month. In summary, despite WorkSimpli's temporary challenges, we remain very bullish about the potential of our business, anchored by the strong performance from our core telehealth business and a very optimistic outlook. 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 a very strong second quarter performance from our telehealth business, with revenue growing 67% versus the prior year, and standalone telehealth Adjusted EBITDA profitability one quarter ahead of guidance. The tremendous strength of our telehealth business supported not only outsized growth, but also strong cash flow, with LifeMD generating positive net cash flow for a third consecutive quarter on a consolidated basis. Based on current and recent trends in sign-up rates, following strategic actions by the leadership at WorkSimpli, we expect this business to return to peak profitability on a monthly run rate basis by the end of 2024. Telehealth subscriber growth remained strong, with the number of active subscribers increasing 32% year-over-year to approximately 254,000.
The number of WorkSimpli active subscribers contracted 8% to more than 159,000. Consolidated gross margin for the second quarter was a record 90.1%, up 273 basis points versus the prior year period. Gross profit for the quarter totaled $45.6 million, an increase of 45% from the year ago period. Our GAAP net loss attributable to common stockholders for the second quarter was $7.7 million, or a loss of $0.19 per share. This compares with the GAAP net loss attributable to common stockholders for the second quarter of 2023 of $7.5 million, or a loss of $0.23 per share. Adjusted EPS is a non-GAAP financial measure that excludes interest, taxes, non-cash expenses, dividends, stocks and insurance acceptance readiness, severance, litigation expense, non-controlling interests, transaction costs, and foreign currency translation.
Reflecting those adjustments, adjusted diluted EPS for the second quarter of 2024 was $0.06, compared with $0.05 in the year ago period. Adjusted EBITDA, which is a non-GAAP financial measure that excludes the same items I noted for adjusted EPS, totaled $2.5 million in the second quarter of 2024. This compares with adjusted EBITDA of $1.7 million in the year ago period. Beginning this quarter, we will also be reporting standalone telehealth adjusted EBITDA for our core telehealth business, which is a non-GAAP measure defined as adjusted EBITDA, excluding our WorkSimpli business. This is an important measure for investors to understand the profitability of our core telehealth business, which represents the long-term driver of the company's growth and profitability.
This measure totaled a gain of $820,000 for the quarter, as compared to a loss of $2.8 million in the year-ago quarter. LifeMD generated $4.5 million of cash flow from operations during the second quarter of 2024, of which approximately $3 million came from our core telehealth business, and generated positive net cash flow after CapEx, debt service, and preferred stock dividends for the third consecutive quarter. Cash balances totaled $35.7 million as of June 30, 2024, an increase of $600,000 over the end of the first quarter, driven by the strong performance of our telehealth business.
Today, we are reiterating our guidance for full year consolidated revenue of at least $205 million, while raising our LifeMD telehealth revenue guidance from $140 millio-$150 million, and WorkSimpli revenue guidance decreasing to $55 million from $65 million previously. We are also introducing standalone telehealth Adjusted EBITDA guidance in the range of $3 million-$4 million for the full year of 2024, a level which is above prior expectations. For historical context, on a standalone basis, telehealth adjusted EBITDA in the full year of 2021 was a loss of over $35 million. We not only continue to rapidly grow our core business, but we continue to do so with immense gains in profitability on a consistent and sustainable basis.
Despite the increases in our actual and implied guidance for our telehealth business versus prior expectations, we are revising full year 2024 consolidated Adjusted EBITDA guidance to $13 million-$15 million from $18 million-$22 million, solely driven by the first half softness in our non-core subsidiary, WorkSimpli. As indicated earlier, we expect this softness to be behind us and believe that WorkSimpli is on a path to achieving peak monthly run rate EBITDA by the end of the year. This wraps up our financial results. I'd now like to turn the call back over to Justin.
Justin Schreiber (Chairman and CEO)
Thanks, Marc. As we conclude our prepared remarks, I am truly excited about the momentum LifeMD is experiencing. Our performance this quarter shows the robust growth and potential of our core telehealth operations, particularly our weight management offerings, which have not only exceeded expectations, but also set a new benchmark in patient acquisition, retention, and satisfaction. Looking ahead, we are strategically positioned to redefine the telehealth landscape. We are actively integrating cutting-edge AI capabilities and expanding our commercial insurance coverage, setting a new standard for patient interaction and care delivery. The imminent launch of our in-house pharmacy will further enhance our operational efficiency, aligning with our mission to build the most robust and technology-advanced telehealth platform in America.
With these initiatives, alongside the expansion of our Rex MD brand and the rollout of new and innovative treatments, we are crafting a future where LifeMD not only leads in market performance, but also in setting benchmarks for comprehensive, tech-enabled healthcare solutions. 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, sir. At this time, if you would like to ask a question, please press the star one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star one to ask a question, and we'll pause for just a moment. We will take our first question from David Larsen from BTIG.
David Larsen (Healthcare IT and Digital Health Analyst)
Hi, congratulations on the good quarter and the profitability in healthcare. It's fantastic. Can you talk a bit about the WorkSimpli business? I guess, the increase in ad costs, what caused the decline in earnings? And what gives you confidence that you'll get back up to peak profitability by the end of 2024? Thank you.
Marc Benathen (CFO)
Yeah, this is Marc. So, the major cause was, one, there was certainly a more competitive advertising environment in the first half of the year. And then two, you know, WorkSimpli definitely made a couple of strategic and executional missteps. They've since made a couple of key personnel changes that have largely cost-corrected the issue. We've actually seen significantly improved CACs, as well as sign-up rates over the last eight weeks, which is what gives us a lot of confidence to be able to get back to peak monthly EBITDA by the end of the year. Obviously, there's a little bit of a building process because they did take a step backwards.
But the fact is that following some of the personnel changes they made and a couple of strategic shifts, which I don't really want to get into the details on for competitive reasons, they've seen nothing but sustained improved performance over the last about eight weeks of performance, which we expect to carry forward for the balance of the year, which will take them back to the peak EBITDA that they had achieved about a year ago.
David Larsen (Healthcare IT and Digital Health Analyst)
That's great. Thanks very much. And then can you talk a little bit more about the profitability within the healthcare business? Like, what in your mind has enabled you to get it up to profitability ahead of expectations? For example, is there a new bundled solution? And if so, how does that work? Like, for example, what is the pricing per month? What are your costs per month? Does it include part of Medifast? And then, or like, how is that sort of partnership progressing in terms of patient flow back and forth? Thank you.
Marc Benathen (CFO)
Yeah. So this is Marc. Look, the biggest driver of getting to profitability quicker than we had originally expected has been that we've obviously been outperforming in the weight management revenue. That was driven by twofold. One, strong retention of existing patients. We think we have a really good differentiated weight management model. Yes, we offer the bundled compounded offering, like others offer. Obviously, there's a percentage of the population that that makes sense for, but our more traditional care-based model has shown really strong retention. And the rate of new acquisitions that we had in the first half of the year also was ahead of where we had originally expected to be for the year.
So you put the retention together with the slightly higher acquisition rate, it's basically translated to us being able to have more rebill dollars of existing patients than we originally had anticipated in our original guidance, which has in turn led us to be able to get the profitability one quarter quicker than we thought. It also is a leading indicator for our ability to be able to sustain trajectory in that business going forward through the balance of the year and into next year.
Justin Schreiber (Chairman and CEO)
Yes, Dave, this is Justin. I'll just-
David Larsen (Healthcare IT and Digital Health Analyst)
Mm-hmm.
Justin Schreiber (Chairman and CEO)
I'll just add for clarity, and I think Marc did answer this fairly directly, but yeah, the bundled compounding business is a very small percentage of our business. Still, the core model is, you know, providing, you know, providing an amazing healthcare service to patients, helping them use their insurance to get coverage for these therapies. And quite frankly, like, look, we've done a great job at, you know, at acquiring new patients in a very competitive environment. And there, as we mentioned in the script, the retention numbers are good, and we think they're gonna be a lot better.
David Larsen (Healthcare IT and Digital Health Analyst)
Great. And one last quick one for me. Justin, you sort of mentioned a holistic approach to weight management. You don't want to simply be a, an access point for, you know, compounded medications. Can you maybe talk a little bit more about that, including your relationship with Withings, and just your, sort of your longer-term vision of the mission of the organization? Thank you.
Justin Schreiber (Chairman and CEO)
Sure, Dave. I love that question. And for the record, I wrote that section of the earnings script myself, and when I say I'm proud of it, I am really, really proud of not only what we're doing in this area, but what I think we will be doing by the end of the year. And I wanna be on record that I think LifeMD will have the best and most comprehensive platform for, you know, a weight management offering that encompasses not only prescription products, but also the educational and the diet and the lifestyle components that are essential to helping patients keep the weight off. And look, the vision is really simple. It's incredible doctors, an incredible coaching component, an incredible educational component, in-home tools, like we've shown we're committed to with our Withings partnership.
Wearables will be a big part of this, and then all of it is connected and enabled also by technology and artificial intelligence. My viewpoint, Dave, is that everybody in this business, both in the D2C side and the enterprise side, everybody, like, claims to have an incredible offering, and everybody claims to offer everything I just said. But I don't think that most market participants don't do a very good job at it. And this is what I've challenged our team with, to do a good job at it. Don't just upload a bunch of nutritional recipes, right, and make them available to patients when you know that nobody's going to actually use those recipes, right? Don't just throw content into, you know, a mobile app that isn't intelligently delivered to patients.
Make sure that whatever we do is delivered at the right time and is kind of something that we can get them engaged with and, you know, enjoying using and, like, create this, like, really awesome and intelligent and thoughtful program, right? That. And it's not gonna work for everybody, but it, you know, my, my thinking is always, like, if we could, if we could even really, really make a big difference for 10%-20% of our patients and teach them what it means to be truly metabolically healthy, we're gonna really change a lot of lives, and that's my vision.
David Larsen (Healthcare IT and Digital Health Analyst)
Great. I'll hop back in the queue. Thanks a lot.
Operator (participant)
Thank you. Next, we're gonna go to Steve Dechert with KeyBanc.
Steve Dechert (Assistant VP)
Hey, guys, thanks for the questions. Another quarter here of solid weight management subscriber growth. Just wanna get your thoughts on how you see the trajectory of subscribers for the rest of the year and then into 2025. And then also, as you continue to roll out your commercial insurance and also Medicare, how do you, how do you see that impacting subscriber growth in 2025 as well? Thank you.
Marc Benathen (CFO)
Yeah. So, Steve, this is, Marc. Yeah, look, I, I think you can expect to see very consistent subscriber growth heading throughout the balance of the year. Obviously, there's the potential for upside. The upside comes from a few potential places. One is the Medifast partnership. Two is continuing to expand upon some of the offerings that Justin spoke about earlier in the script today. As far as the second part of your question, I do think in 2025, it will accelerate our subscriber growth. By how much? I can't say exactly now. We're in the infancy of, obviously, rolling out our insurance program, but there's definitely a large market there, and there's a large market for the level of care and services that we're providing.
And then, you know, once we do get into Medicare, that's an entirely new market for us. We don't, we can't treat those patients today, and we know that we're turning away several patients within that market segment today. So it could have a potentially meaningful impact on subscriber growth in 2025. I think it's a little bit too early for me to say, "Here's an exact number by which you would see that increase by," but it's definitely gonna accelerate it.
Justin Schreiber (Chairman and CEO)
Yeah, Steve, this is Justin. I'll just add a couple points to that as well, 'cause I think it's probably one of the most important questions right now for people listening to this call. One, like as we mentioned in the script, we're doing a great job with getting prior auth approved by our patients' insurance companies. I think if you fast-forward six to 12 months, you could easily see 40%-50% of our population on a branded therapy, of new patients accessing a branded therapy. So that's something I'm really excited about, and we have a new partnership right now that we're, you know...
It's a new technology company that we're working with that, you know, is seeing 40%-50% approval rates for branded therapies with other, you know, large providers they're working with. So we're excited to get that implemented. We think that's a really important point. I think that's a really important point. As Marc said, Medicare, we're already enrolled. We're going to be ready, whether it's late this year or early next year. But Medicare and Medicaid are gonna be big opportunities, you know, and if for GLP-1 therapies, and we're, we're going to be a leader when it comes to helping patients with Medicare, especially access these therapies and our comprehensive program. There's also a lot of innovation in this GLP-1 space.
There are a lot of new candidates in the development process right now, and I think oftentimes people focus too much, you know, on the handful of therapies right now that are branded, that are, you know, that are being used by most patients. I think that there's, you know, there is always going to be, like, unique therapies that, you know, can probably be compounded for people whose insurance doesn't cover branded therapies. So that's a really important point. And lastly, we're launching, in the coming weeks, another compounded prescription weight loss program that is not a GLP-1, that has a great safety and efficacy profile, and we're really excited about this.
We think it, you know, will be appropriate for a lot of patients who either don't have coverage for a GLP-1 or can't tolerate a GLP-1.
Steve Dechert (Assistant VP)
Great. Thank you.
Operator (participant)
Perfect. Next, we're gonna go to William Wood with B. Riley Securities.
William Wood (Biotech Equity Research Analyst)
Yeah, thanks and for taking my questions and congratulations on a very nice quarter. So I was actually just curious if you could maybe talk about your recently launched Rex MD GLP-1 offering. I know it's sort of early, but how have you seen that sort of launch building? And has that been any appreciable comparison to what you've been seeing with your more LifeMD offering? I mean, essentially, are people more going towards the LifeMD or is the Rex MD having an appreciable uptake?
Justin Schreiber (Chairman and CEO)
William, I'll take that one. This is Justin. So the Rex MD GLP-1 launch has been a little slower than we expected, and I think a lot of that is just because we've been so—you know, we've seen such great growth on the LifeMD side, and, you know, it's, we're in the process of, you know, of just continuing to, like, improve, not really improve the Rex MD business, but we're just continuing to invest some resources there into scaling that up. But right now, the direct answer to your question is, it's a very, very small percentage of the overall weight loss business. Definitely sub-5%.
William Wood (Biotech Equity Research Analyst)
Got it. That's helpful. And then additionally, on the LifeMD side, or actually just more on the telehealth side in general, in the past, you've specifically highlighted, sort of giving us some color on how the present quarter has been going overall, maybe, you know, quarter to date, as well as mentioning the deferred revenue. You know, just to give us an idea of how the new prescribers are coming on, if they're taking that six-month program. I was wondering if you could just give us any additional color on what you've been seeing on the LifeMD side or the telehealth side, weight management, specifically, post-second quarter.
Marc Benathen (CFO)
Yeah, look, post-second quarter, as our business has gotten more mature, obviously, we're, we're gonna start sticking mostly to reporting at the end of the quarter for consistency purposes. There's been some confusion in the past around people quoting different subscriber amounts mid-quarter, so we wanted to end that confusion. But look, the business has continued to perform very strongly. We've actually seen improvements in retention, as we highlighted in the script. Acquisitions tend to be very consistent with what they've been before. You'll have some weeks where it might be a little lower, you'll have some weeks where it might be a little higher. But, you know, in general, gross signups have been very consistently around that 400 or so a day, but with improving levels of retention, so we expect that to create momentum.
Deferred revenue continues to grow, as you'll see or did see. It grew just under $2 million in the quarter. Obviously, the rate of growth in deferred revenue as we get bigger will be slightly smaller, just because you have more revenue being recognized. We're continuing to see more than half of people take the six-month offering. There's really not a reason not to. You get a bigger initial discount. And, you know, when you think about retention, on the retention side, people are typically not getting discounts on the rebills and the retention. So the fact that we're seeing, you know, improvements in that area, I think really speaks to the quality of the offering.
William Wood (Biotech Equity Research Analyst)
Got it. And then one last quick one. I know in the past you, you've discussed, and I believe you actually mentioned it on the call earlier about divesting WorkSimpli and just really focusing on the health, the telehealth and the products that you offer through that. With sort of the slide in WorkSimpli and some of the bumps you've been seeing, have those potential divestment and partner or, you know, outsourcing WorkSimpli discussions picked up any, or is that still more just something on the back burner that you may or may not pursue?
Marc Benathen (CFO)
Yeah, I would say-
Justin Schreiber (Chairman and CEO)
Yeah, go ahead.
Marc Benathen (CFO)
Go ahead.
Justin Schreiber (Chairman and CEO)
Yeah, I'll take that one. I mean, look, we're as we said on prior calls, William, like, we have regular interest from potential acquirers of WorkSimpli. We're committed to doing what's right for that business and for our shareholders. I can tell you that presently, you know, we have some very strong interest in WorkSimpli, but we'd like to be conservative with shareholders, you know, when we forecast, you know, what's gonna happen and when, right? But I think, you know, we do think we'll sell that business at the, you know, the price point that we've guided in our investor presentation at some point in the future.
It could be in the back half of this year, and it could be next year, but we think that that's something that will likely happen. What we're really focused on is working with Sean right now and, you know, just being supportive shareholders and seeing the business get back to peak EBITDA, which we're really confident about. We have a lot of clarity now on just kind of that business recovering to where it was at its peak. Sean's actually working on a few new products that will further diversify the business, that are very exciting and are pretty large markets where there's a lot less competition. And so we think very highly of this business.
We think it's a very valuable asset, and you know, but we are working to sell it, you know, at the appropriate time.
William Wood (Biotech Equity Research Analyst)
Got it. Very helpful. Thank you for taking my questions. I'll jump back in queue. Congratulations on a nice quarter. Appreciate it.
Operator (participant)
Thank you. Next, we're gonna go to Sarah James with Cantor.
Sarah James (Managing Director and Equity Analyst)
Thank you. I wanna go back to telehealth reaching profitability a quarter ahead of your expectations, which is a, a huge accomplishment. Can you talk in a little bit more detail about where retention is now versus where you thought it would be, when you thought breakeven would be a quarter later? Can you remind us what the margin or contribution ramp looks like when you initially bring a customer on there versus when they've been retained for either the six-month period or whatever timeframe you feel is most relevant?
Marc Benathen (CFO)
Yeah, Sarah, this is Marc. So essentially, as we mentioned earlier, we are seeing at the six-month mark for patients to go on therapy. As we talked about before, there's that initial 20%-25% fall off within the first 30 days related to patients who can't access therapy, which is heavily driven by denials from insurance companies, and then not wanting to access a compounded therapy or not wanting to cash pay. Those rates are very consistent. Where we're seeing improvement is as you get out to about six months, and we'd expect this to flow through to 12 months as well, we just have a limited number of people in the 12-month mark since we launched in April 2023. We're seeing about a 400-500 basis point improvement in those people.
Previously, we had expected that we would be somewhere around 40%. At the six-month mark, we're starting to see more like 45%-46%. And then when you get to the 12-month mark, seeing somewhere typically in that 30%-35% range, and that includes the 25% of folks that fell off in the initial 30 days and did not go on therapy. So what we would expect to see, though, is because the majority of what has driven our business has been getting people on therapy, we would expect to see that 400-500 basis point improvement, at least a good portion of that, flow through to the 12-month mark, and obviously, it remains to be seen, you know, how that flows through after the first year.
That, in turn, is creating a fair amount of upside. On the top line, it's creating upside, you know, for the quarter of about $2 million, of which we saw roughly about 40% of that, 50% of that flow through to the bottom line, which obviously contributed to us getting to profitability one quarter quicker than we had expected. As far as on a go-forward basis, you know, as we've said before, new patients obviously have the acquisition advertising costs with. Typically, you're spending the first, call it, two to three months to break even on a new patient, where you layer in all returns, and ad costs, and then about a two to one return on investment on a net basis after 12 months.
Rebuild patients, and the rebuilds are obviously growing faster than we had originally modeled in the guidance because of increasing retention rates and slightly better acquisitions. That's where the vast majority of those dollars do flow to the bottom line. I mean, you have some COGS, you have merchant fees, but typically you're looking, and some additional clinical costs to support that, but by and large, you're looking at about 60% of those incremental rebuild dollars flowing through to the bottom line.
Sarah James (Managing Director and Equity Analyst)
That's very helpful. And then on a bigger picture basis, is there any way you can help us frame up what the demographic mix is of your telehealth customers and how it might be impacted by the consumer and job market headlines that we see going on now?
Justin Schreiber (Chairman and CEO)
Hi, Sarah, this is Justin. I can try to take a stab at that. So if we're, we have two very large businesses inside of LifeMD. For the Rex MD, on the Rex MD side, you know, it's a men's health business. Average age of a Rex MD patient is in their kind of low fifties. You know, they, you know, the AOVs there are still significant, and we have a lot of patients that spend, you know, $500-$1,000 upfront on, you know, treatment for erectile dysfunction, for instance. So, you know, in the past, as we've seen some swings, you know, since we've launched that business, you know, we really haven't seen softness there.
And then if you look at the LifeMD side of the business, you know, I think that, you know, I think that healthcare and even weight loss is something that if you look back historically, it, you know, it's not an area that's going where you're gonna see a, you know, where you're gonna see a big effect from, you know, a more difficult economic environment. The average age, you know, that patient population skews a little bit more female. It's about 70% women. You know, it's a slightly younger demographic than on the Rex MD side. It's, the average age is around 40%. And, yeah, so we really are not concerned about, you know, about, you know, pressure on the consumer.
We think that these are priorities in people's lives, the types of conditions that we treat. Healthcare is, you know, clearly a big priority for patients. We're also, you know, we're not the most expensive offering out there. You know, we take a lot of pride that our services are affordable to, you know, almost every American.
... you know, we're pretty confident that even if we see a slowdown in the economy, there will be strong demand, you know, for our products and services.
Sarah James (Managing Director and Equity Analyst)
Great. Thank you.
Operator (participant)
Thank you. Next, we'll go to Yi Chen with H.C. Wainwright.
Yi Chen (Managing Director of Equity Research)
Thank you for taking my questions. Do you have a rough timeframe within which to achieve the goal of divesting WorkSimpli?
Marc Benathen (CFO)
Yeah, Yi, this is Marc. You know, as we've said, I mean, we're not gonna commit to an exact timeline for that. We've actually received a fair amount of interest this year, continued to obviously pursue appropriate deals. And, you know, when we get to that point, we can, we can update people. Obviously, our goal is to do a divestiture. There is always the potential of a divestiture this year or next year. But, you know, we're not gonna obviously pinpoint an exact month or quarter until we have a definitive agreement signed.
Yi Chen (Managing Director of Equity Research)
Okay, got it. And, does the fact that drug shortage of tirzepatide is over affect your business in weight management in any way?
Justin Schreiber (Chairman and CEO)
This is Justin. I'll take, I'll take that one. First of all, tirzepatide is, according to the FDA's website, still on the shortage list today.
Yi Chen (Managing Director of Equity Research)
Mm-hmm.
Justin Schreiber (Chairman and CEO)
But you know, even if tirzepatide or, you know, other GLP-1s were to come off the shortage list in the near future, I mean, we feel really good about our weight management business being able to, you know, help patients access branded medications, you know, through the prior auth process. You know, we're really optimistic about coverage continuing to improve there. We're, you know, we expect that at some point in the future, Medicare, you know, will cover these drugs. We're prepared for that.
Again, we do think there will always be a compounding avenue for patients that don't have coverage for you know, for branded therapies to access them, you know, through a compounding pharmacy, where you know, we do believe that you know, that's not going away anytime soon. And then, like I said, we also have alternative therapies that are prescription strength and are very efficacious. So we believe this is a very durable and long-term business, and you know, there's not gonna be anybody in the country that has a more comprehensive program for helping people lose weight with a GLP-1 medication. And there's not gonna be anybody that's better than LifeMD at helping patients you know, use their insurance, get a prior auth approved you know, and access these therapies.
But let's all be clear, there's still even if we do those two things, which we will, and we are, there's going to be a percentage of the population that doesn't have insurance coverage for these therapies. And right now until the price points, until there are more patient assistance programs put in place by pharma manufacturers to help, you know, Americans that don't have blue chip insurance or don't have insurance, period, we, as a country and as healthcare providers, are going to need to have another avenue for those people to access these medications.
And so, you know, because we always do what's right for patients, that's our first priority as a company, you know, we're going to continue to help patients access compounded therapies, you know, until there are enough patient assistance programs, you know, to help Americans that don't have insurance or don't have insurance that covers these medications, access them. And that's the right thing to do, it's the ethical thing to do, and it's what we're gonna, it's what we're gonna continue to do again, until, until the environment changes.
Yi Chen (Managing Director of Equity Research)
Thank you. A quick follow-up. Do majority of our patients on your platform today have access to branded drugs?
Justin Schreiber (Chairman and CEO)
No. We've talked about this number before. It's in the, you know, 20% range of our patients-
Yi Chen (Managing Director of Equity Research)
Okay
Justin Schreiber (Chairman and CEO)
... that are on a branded therapy.
Yi Chen (Managing Director of Equity Research)
Thank you.
Operator (participant)
Thank you. Next, we're gonna go to Alex Fuhrman with Craig-Hallum Capital Group.
Alex Fuhrman (Senior Research Analyst)
Hey, guys. Thanks for taking my question. Justin, I mean, great results on the weight management business. You know, really impressive that you are inflecting the profitability sooner than expected there. And it sounds like you're seeing some really positive signs in terms of prior authorization for the branded therapies. You know, it's certainly an area where there has been a lot of new entrants. Everyone has, you know, a little bit of a different offering. It seems like some are really pushing compounded medications only, and certainly some other companies that offer branded medications, you know, seem to be talking about, you know, insurance coverage continuing to be very challenging, maybe even getting a little bit more challenging.
You know, what is it about your program that, you know, you're starting to see these big wins in terms of prior authorizations, in terms of, you know, profitably growing your business, not just in terms of gross adds? Because it's not like, you know, LifeMD is a household brand name, and you certainly don't have the cheapest offering out there. You know, can you talk about what, what it is that you're, you're doing differently than the competition that's, that's, you know, really enabling you to, to profitably scale the business?
Justin Schreiber (Chairman and CEO)
Thanks, Alex. You gave me a lot of questions there, and let me sort of do my best to answer them. I mean, look, look, first of all, we're not surprised about, you know, the profitability and us getting the business to profitability a little bit ahead of schedule. We expected to do that. You know, the retention numbers are good. They're really right where we expected them to be. I think an important thing to point out is that we can do a lot better. There are just so many other opportunities when you think about the long-term wellness programs that, you know, we're launching inside of LifeMD.
When you think about, like, all of the other, like, optimization, you know, programs that we're launching that help, you know, kind of really help patients long term and not just to get to, like, whatever their weight loss goal is. And I mean, look, do we have a household, you know, is LifeMD a, you know, brand that everybody knows? No, but I think, like, I think what we're doing right is we're providing incredible healthcare. I think that our strategy around making almost every one of our patients talk to one of our providers that are also really bought into this mission and providing, I think, really unique and great care for a virtual model, I think that's really special. Very few, almost...
There are one or two other companies out there that I, you know, found out recently are doing this, but most are not. And so that's something that we're super proud of. And look, we are seeing a lot of patients that are on therapy and are referring friends of theirs. And, you know, I think that we are really starting to build an incredible brand and a lot of equity in the LifeMD brand. So as far as your first question on the prior auth process, there are a lot of these companies out there. We diligenced at least 10 of them. We found one that we think is really exceptional. The numbers that they've shared with us on prior auth approval rates would more than double the number of patients that we have on a branded therapy.
So as you can imagine, like, I'm really, really, really happy about that and excited for that. It's gonna be a lot. We're gonna have this live in the next couple of weeks. And I'm generally really optimistic as well about coverage improving. And I think that as these drugs, everybody likes to talk about these drugs coming off the shortage list. That's great. It's really great that we can now make these incredible drugs that are helping so many people. But the other part of the conversation that no one's talking about is, once these things are able to be made and supplied to the U.S. population, concurrent with that, we need pharma companies to start talking about patient assistance programs. And let's start talking about what we're gonna do as a society to help patients that don't have coverage for these drugs access them.
And by the way, as those patient assistance programs come online, guess who's gonna be really, really well-positioned to help these, you know, to help people, you know, access drugs through those assistance programs? It's gonna be LifeMD. And so look, I really think that no matter what happens here, what we know is that these drugs are, you know, likely a major, major breakthrough and are doing so many incredible things for people. This is a very long-term thing. It's not going away. People, most people are going to access these drugs through a virtual environment. A comprehensive offering is essential. We all agree on that. Even if there's long-term use, you still want a comprehensive program that helps people make other diet and lifestyle changes to maximize, you know, the outcomes of these therapies. Everything I just said, like, we're perfectly positioned for it.
So that's why I feel really, that's why I feel really confident about, you know, this being a very, very long-term business, for us and certainly for a lot of other, you know, virtual care companies out there.
Alex Fuhrman (Senior Research Analyst)
That, that's really helpful, Justin. Really appreciate that thorough answer. Thank you.
Operator (participant)
Thank you. And we'll next go to Ilya Zubkov from Freedom Finance Global.
Ilya Zubkov (Senior Equity Research Analyst)
Good afternoon, and thank you for taking my question, and congrats with another record quarter. I have a question on new members' retention in the healthcare business. So, the share of weight management members in the total active users count is growing, and I'm curious to get your perspective on how you plan to retain these users once they reach their weight loss goal. Probably you already have some users who have met their desired weight level taking GLPs. And could you give us a color on the options these users have to stay with LifeMD's products for longer?
Justin Schreiber (Chairman and CEO)
Yeah. I actually think I understood your question. Let me take a stab at it. You know, we have two programs for patients that reach their goal weight with LifeMD. You know, one is our Success wellness program, which is really just like a complete and program that helps people focus on, you know, their lifestyle, their mental health, lots of things like sleep and other aspects of wellness. And we, you know, this program is really delivered by people inside of LifeMD and supported by a LifeMD provider. And alongside of that program, you know, patients have access to urgent primary care and using their in-home tools and their app and everything else that our platform offers.
We also have a second program, which is designed for patients that want to use a GLP-1 longer term, which is, you know, which is designed for patients to reach their goal, their goal weight and maybe don't want to use a full dose or wanna use a GLP-1 less regularly than they have in the past. And so we've built some other, you know, unique, what we call GLP-1 maintenance programs to help, you know, patients that are in that situation as well.
And then I'll also mention that there are a number of other, you know, more or less like, you know, health optimization programs, you know, that we're building, you know, that I think are really appropriate next step for some patients, that, you know, have this transformational weight loss experience with LifeMD. And some of those, I mean, I think hormone therapy is a, you know, really interesting, you know, program that, you know, if you, if you have women on the platform who lose weight and, you know, we have a lot of those patients that just naturally ask us to do hormone testing for them and wanna talk to their doctor about that.
I think that there are a number of, you know, more lifestyle-like telehealth offerings that, you know, would be of interest to a large number of patients that successfully use our platform to improve their metabolic health and lose weight.
Ilya Zubkov (Senior Equity Research Analyst)
Okay, thank you. That is very helpful. One brief on the Medifast partnership. I'm wondering, what is the current progress in the launch of the bundled products, and how much this partnership is anticipated to contribute to the subscriber growth this year?
Justin Schreiber (Chairman and CEO)
That's a question for Medifast. I think we're not going to discuss any of Medifast results or patient numbers, especially given that they're also a public company. I would suggest if you look at their recent guidance or their recent earnings report, they spoke fairly extensively about where they're at with the launch of their bundled offering.
Ilya Zubkov (Senior Equity Research Analyst)
Okay. Okay, thank you.
Operator (participant)
Thank you. I'd now like to turn the call back over to Justin Schreiber for any closing remarks.
Justin Schreiber (Chairman and CEO)
Thanks, everybody, for your questions and for your continued interest in LifeMD. We look forward to speaking with you once again when we report our third quarter results in November. Have a great evening.
Operator (participant)
Thank you. This does conclude today's program. Thank you for your participation. You may disconnect at any time.