LifeMD Inc

NASDAQ:LFMD

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Operator]

Good afternoon. Thank you for joining us today to discuss the results for LifeMD's Third Quarter Ended September 30, 2023. Joining the call today are Justin Schreiber, Chairman and Chief Executive Officer; and Marc Benathen, Chief Financial Officer of LifeMD. Following management's prepared remarks, we will open the call for a 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 have 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, November 8, 2023. The company assumes no obligation to update or revise any forward-looking statements after today's call, except as required by law.Also, please note that management will be discussing certain non-GAAP financial measures that the company believes are important in evaluating LifeMD's performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliations thereof can be found in the press release issued earlier today. Finally, I'd 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, executive]

Thank you and good afternoon, everyone. After the market close, we issued a press release announcing our third quarter results and posted an updated corporate presentation on our website at ir.LifeMD.com. LifeMD had a tremendous third quarter with record revenue and profitability. Our core telehealth operations produced extremely strong results in both our lifestyle healthcare businesses, led by RexMD, our men's health brand, and our rapidly growing Virtual Primary Care business led by growth in our GLP-1 weight management offering.Our RexMD business grew 12% versus the year ago period, with a net margin of 38% in the third quarter. The performance of our GLP-1 weight management business has been nothing short of exceptional, with revenue quadrupling over the prior quarter's results, far surpassing our projections. Looking ahead to Q4 and beyond, LifeMD is positioned to not just sustain but continue to build upon the tremendous success we've experienced throughout the year across our telehealth businesses and with WorkSimpli. I believe LifeMD is uniquely positioned for 2024 to be a record-setting year.To deliver excellent value for our shareholders, we remain laser focused on the following 4 major strategic initiatives: first, our largest initiative in the year ahead is continued focus on accelerating the growth of our weight management program. Since launching in Q2 of this year, our weight management program has already attracted over 16,000 patient subscribers, representing more than $24 million of annual recurring revenue. Even as we scale our daily acquisition volume, this offering's economics remain tremendous with our day 1 return on ad spend consistently exceeding 1x. Moreover, we anticipate several tailwinds to further accelerate the growth of this business into 2024, including continued growth in brand recognition of our weight management offering; 2, LifeMD beginning to accept commercial and government insurance programs, which I will speak about in a moment; 3, better availability of medications and likely expansion of insurance coverage in 2024 for GLP-1 medications; 4, expanded therapeutic options within the GLP-1 drug class, including generic liraglutide and FDA approval, which happened today of Mounjaro for weight loss in adults with obesity; and 5, new growth channels from partnerships that are already in the works.Second, we remain focused on making substantial progress in the growth of our B2B enterprise program. As we announced during the third quarter, we executed an agreement with ASCEND Therapeutics, a leader in the hormonal and women's health markets, which allows ASCEND to leverage LifeMD's cutting-edge telehealth platform, data capabilities, and healthcare marketing expertise to support its products. This not only generates ongoing fees for LifeMD, but also places the all-important patient-provider relationship within our affiliated medical group. LifeMD also executed a joint sales and marketing agreement with IQVIA, leveraging our leading telehealth infrastructure in partnership with IQVIA's comprehensive commercialization solutions. With a robust B2B pipeline, we expect to execute additional opportunities in the near future.Third, we have made and will continue to make significant progress in enrolling our affiliated medical group in commercial insurance plans. We expect to bill our first consult in Q4, and we'll be rolling out coverage nationwide throughout 2024. As commercial insurance becomes more embedded within our offerings, we expect it to significantly lower the out-of-pocket cost of our services to our patients and to be a big driver of overall patient satisfaction and retention. Additionally, we have already begun building an industry-leading compliance infrastructure for Medicare participation and anticipate being prepared to launch and scale this as soon as it makes sense for our patients and our business. We believe that participation in commercial and government insurance programs will fuel another leg of significant growth for LifeMD.And our fourth key initiative is continued focus on our lifestyle healthcare business led by RexMD where we continue to drive double-digit growth with net margins exceeding 30%. Our men's sexual health business continues to be highly profitable and shows no signs of slowing. In 2024, we see further opportunities to expand this rate of growth and profitability through the introduction of new complementary products, including ones geared toward hormone replacement therapy, weight management, and cardiovascular health.Lastly, WorkSimpli continues to deliver exceptional results on both the top and bottom lines. This self-managed business is a meaningful contributor to LifeMD's overall profitability and cash flow. Moreover, WorkSimpli has successfully diversified from a PDF solutions business to a diversified workplace services business, including HR solutions, digital signing, proprietary forms, AI technology, and plans to enter additional adjacent markets in 2024. WorkSimpli now operates in 20 languages globally and has increased its once negligible small business customer penetration to approximately 15% of the total subscriber base today. We expect WorkSimpli to generate at least 20% annual growth in 2024 with adjusted EBITDA margins of approximately 30%.In short, we're in a really exciting spot 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, executive]

Thank you, Justin, and good afternoon, everyone. LifeMD had record third quarter performance on both the top and bottom line with consolidated net revenues growing to $38.6 million and consolidated adjusted EBITDA growing to $2.8 million. Additionally, we ended the quarter with over $15 million in cash and our second consecutive quarter of positive operating cash flow. We are in a well-capitalized position to continue to execute upon our aggressive growth and profitability plans.Now turning to the results for the third quarter of 2023. As I mentioned, revenue in the third quarter totaled $38.6 million, an increase of 23% compared with the same year ago period and up 7% versus the second quarter. Total telehealth revenues grew 14% versus a year ago period and 9% sequentially. Net revenues from our weight management business more than quadrupled versus the prior quarter. Subscriber growth remained very strong with the number of telehealth active subscribers increasing 22% to approximately 207,000 and WorkSimpli active subscribers increasing 14% to over 170,000, both versus a year ago period. Consolidated gross margin for the third quarter was a record 88%, up 300 basis points versus the prior year period. Gross profit for the quarter totaled $33.8 million, an increase of 27% from the year ago period.Operating expenses for the third quarter totaled $38.4 million, an increase of $4.6 million versus a year ago period, reflecting our discretionary increases in selling, marketing, clinical, and patient care expenses to support the rapid growth of our weight management offering. Net of these investments, operating expenses were flat year over year. Operating expenses in the third quarter included $5.2 million of noncash expenses associated with stock-based comp, noncash interest, depreciation and amortization expenses.Our GAAP net loss attributable to common stockholders for the third quarter totaled $6.9 million, or a loss of $0.20 per share. This compares to a GAAP net loss attributable to common stockholders of $8.1 million, or a loss of $0.26 per share in the third quarter of 2022. Adjusted EPS is a non-GAAP financial measure that excludes noncash expenses, dividends, SOX and insurance acceptance readiness, litigation expense, noncontrolling interest, M&A expenses, financing transaction costs, and foreign currency translation. Reflecting those adjustments, adjusted diluted EPS for the third quarter of 2023 was $0.08 per share, compared with a loss of $0.03 per share in the same year ago period. Adjusted EBITDA, a non-GAAP financial measure, that excludes the same items I noted for adjusted EPS, totaled $2.8 million in the third quarter of 2023. This compares with an Adjusted EBITDA loss of $806,000 in the same year ago quarter.Cash and cash equivalents totaled $15.3 million as of September 30, 2023. We believe the strength of our balance sheet and profitability of our current operations will more than adequately allow us to fund the growth in our business. For 2023, we expect to achieve the midpoint of our previously disclosed revenue range. More specifically, revenue between $148 million and $149 million, and adjusted EBITDA between $10 million and $11 million, including the estimated impact of approximately $4 million of deferred revenue related to weight management resulting from the GAAP-required amortization of fully-paid subscription amounts over their initial time period.This wraps up our financial results. I'd now like to turn the call back over to Justin.

[Justin Schreiber, executive]

Thanks, Marc. As we conclude today's call, I want to take a moment to reflect on our journey and the path ahead. Over the past few years, I have constantly stressed our commitment to building a best-in-class telehealth technology platform. I believe our third quarter achievements validate our continued efforts. At the heart of our success is our telehealth platform, guided by an exceptional 50 state-affiliated medical group and purpose-built technology that powers RexMD and our rapidly-growing Virtual Primary Care business. Our GLP-1 weight management offering in particular has exceeded all of our forecasts, and we're just getting started. Looking ahead, we're in a position of strength. With the ongoing success of our businesses WorkSimpli and our planned B2B partnerships, we expect to deliver even more impressive results. As we prepare to finish this quarter and enter 2024, I am confident in our ability to not only maintain our momentum, but to accelerate it.With that, I would like to open the call for Q&A.

[Operator]

[Operator Instructions] Our first question comes from Sarah James with Cantor Fitzgerald. David, are you there?

[David Larsen, analyst]

Yes, I can hear you now. If you were calling for me, I didn't hear you, but yes, I'm here. Congratulations on a great quarter, great revenue and EBITDA. Did I hear you correctly in saying that you're at a $20 million annual trend for your weight management program with 15,000 lives?

[Marc Benathen, executive]

Yes, we're currently at about 16,000-plus lives at about $129 a month is the pricing, so that's where you get to the $24-ish million that we quoted.

[David Larsen, analyst]

Okay. And then what are your expectations for that life count heading into next year, and what portion do you expect to retain? Do most people stay on the program or not?

[Marc Benathen, executive]

Yes, this is Marc. So we're seeing thus far -- and again, it's very early on, we're not giving full guidance for the number of lives next year. We anticipate giving 2024 guidance in January of 2024 after the plan for next year has been fully approved by the Board. The expectation, though, is that we're going to see very significant growth next year, and again, we will follow up with more fulsome guidance within the next couple of months. As far as retention, there is a little bit of the initial falloff which we've talked about before in the range of around 25% to 30% within the first 30 days, entirely due to insurance coverage and the cost of copay. After that, we're seeing really strong retention. We're seeing 80% to 90%, very high numbers of people staying on the program after. Again, the data is very early on, but we are very optimistic about weight management. And as I think folks may recall from earlier calls, we built the original model with extremely pessimistic retention in place. So if retention continues to play out the way that we've seen early on, we expect there could be some considerable upside in the coming years.

[David Larsen, analyst]

Okay. And then can you maybe talk about pricing for the various products? When do you think some of these will come off-patent? Will your margins benefit from that if and when that happens? Just any thoughts there?

[Justin Schreiber, executive]

Sure. David. We're charging right now -- this is Justin. We charge right now around $100 a month with discounting for patients to use our platform, access our affiliated providers, and receive everything that comes with being a patient of LifeMD. I do think that it's nice to have the first GLP-1 coming off a patent. That's happening in December. So we expect to have a supply agreement in place by Q1 with the generic manufacturer of liraglutide. I think that will help to reduce that 1/3 of patients that we end up refunding right away because of access and cost issues.I'm also very optimistic, and I know this is controversial, but I'm optimistic that throughout next year, there continues to be downward pressure on prices within the GLP-1 category. Even today, we saw Eli Lilly's approval of Mounjaro for weight management. And there's some thinking right now that, well, what we saw was that they expect to price that around $1,000 a month and with a 50% discount coupon. So we're optimistic that over time prices are going to come down on the drugs. LifeMD is also going through the process of contracting with major insurance plans across the country. We think that being a network is going to enable us also for patients with private insurance, or eventually Medicare, when Medicare covers these medications and this treatment, we think that will enable us to lower that monthly or quarterly price of our services. So longer term, yes, we think that the price will come down. And as we've mentioned before, we're also working with some very, very large, some of the biggest diet companies throughout the U.S., and we expect some of those partnerships to also help us on the coverage side and getting more patients approved and covered by their insurance companies for these medications. So that ultimately results in people spending less on the complete offering.

[David Larsen, analyst]

So do you have a partnership in place with like a Medifast or a Nutrisystem right now? And then could you introduce those products to your members? And then if your members wanted to transition from the GLP-1s over to a more, sort of, we'll call it traditional weight management program, would they be able to do that? And just what are your thoughts on CGMs? Do you have a program in place to use them with health coaching?

[Justin Schreiber, executive]

Sure. So with regards to Medifast and Nutrisystem, these are 2 companies we've talked about previously that we did pilot programs with. We're also working on -- we've done pilot programs with other companies that weren't public. And as of right now, we haven't announced any partnerships with any of these companies, although we've said publicly that we expect to announce a transformational partnership with 1 of these very prominent nationwide health and wellness or diet companies. I'm excited about -- I think it's essential that LifeMD offers a food plan, a diet plan, along with access to GLP-1 medications. I think it's also important that we offer coaching and nutritional advice, which is something else that we're working on, which is interesting in the pilot that we did with Medifast. Medifast also has an amazing coaching network throughout the United States. So that's something that we're potentially excited about down the road.I think the other thing that we're really looking at is technology solutions. So I think that there are a lot of different technology solutions that we can in-license, that would bolt onto our existing technology platform, that would help patients track their eating, hold them accountable to eating properly, and maximizing their metabolic health. So I'm very excited about that as well. Also on the CGM front, we are in the early stages of talking to some of the leading manufacturers of CGM devices, and I think that's something that over time, we'll also incorporate into our offering.

[Operator]

Our next question comes from Sarah James with Cantor Fitzgerald.

[Sarah James, analyst]

Apologies for earlier. So I wanted to get a little bit of an understanding of where your clinical recruitment pipeline is right now. How you're thinking about pacing, bringing on the staff? And then just from like an ROI perspective, how do you think about allocating that staff's time between weight management and primary care?

[Justin Schreiber, executive]

Sarah, this is Justin. That's a good question. We've spoken a lot about how proud we are of the reputation that our affiliated medical group has built in the industry. We have an enormous amount of interest when it comes to working for LifeMD. I think I've said before, we have 400 to 500 resumes that have come in over the last couple months as we've scaled the medical group as a result of the growth of our GLP-1 weight management offering. I'm not concerned at all. We're in the process of onboarding another 3 to 5 providers over the next couple of weeks. That's going very well. I think we're going to have to onboard probably at least 10 to 20 providers over the next 6 months. And I'm not concerned at all about our ability to do that. And I'll also mention, we're extremely picky with the providers that we allow to interact with and treat LifeMD patients. So when I say we're going to be able to recruit providers, it always means we're going to be able to recruit the best providers out there.

[Sarah James, analyst]

And then in my conversations with the payers, there seems to be some movement going on in the regulatory front in certain Democratic states, like California and New York, around GLP-1 coverage that could be positive for acquiring coverage. I'm wondering if you're seeing any of that flow through in your business in volumes in California and New York, or if it's too early.

[Justin Schreiber, executive]

I think it's too early. Our patients are still having -- there's still issues with coverage for these medications. There's still supply issues. Patients are oftentimes struggling to find them in neighborhood pharmacies. So I'm not familiar with those legislative initiatives. But we're, of course, all for that at LifeMD. One of the interesting things is we see firsthand, all day, every day, how many people's lives are being positively impacted by these medications. And I understand it's all about long-term outcomes. But based on what we've been seeing over the last 12 months, I find it highly unlikely that we're not going to see pronounced, very positive, long-term outcomes from these therapies.

[Sarah James, analyst]

And last question, if I could. Can you give us any update on the cross-selling efforts that you guys have going on between the legacy businesses like Shapiro and Rex and your Primary Care? Any update there?

[Justin Schreiber, executive]

I don't have any specific numbers that we're prepared to share today. I can tell you that the weight management offering is the #1 service that is cross sold to RexMD patients in their member portal. So that's been really successful. And this is something that in 2024 we expect to dramatically accelerate. But I don't have any specific numbers that I'm prepared to share today, Sarah.

[Operator]

Our next question comes from Yi Chen with H.C. Wainwright.

[Yi Chen, analyst]

So the weight management revenue more than quadrupled versus the second quarter. Do you think that's primarily because some of your competitors do not offer this product or because [ there's ] unique combination of offerings that's available at LifeMD?

[Justin Schreiber, executive]

There are a lot of other companies, telehealth providers offering this product. So no, I don't think that's the reason for our success. I think that there's very, very high demand across the country for these drugs because of their efficacy. And I think that LifeMD, 1, already has a very strong brand out there that people recognize; and I think we're doing a great job at bringing patients in, helping them access amazing care. We're seeing more and more patients that are coming to us because they heard about LifeMD from a friend or family member that's on a medication. So I think it's an extremely competitive environment out there, but I think we're doing a great job at doing what we do best.

[Yi Chen, analyst]

Do you believe the weight management revenue has the potential to sequentially grow twice, 3x or 4x every quarter going forward?

[Marc Benathen, executive]

Yes, this is Marc. The weight management revenue has the potential to grow extremely substantially every single quarter going forward for the foreseeable future. Is it going to quadruple every single quarter? No, as the numbers get bigger, obviously, you would end up with a completely insane number. However, I do expect in the next quarter to see in weight management more than 100% sequential growth, so the revenue more than doubling quarter on quarter. And I do expect to see very heightened growth next year versus this year. This will all be factored into the guidance that we provide for 2024 in the beginning of 2024. But we don't see any signs of it slowing down. As a matter of fact, the business continues to accelerate.

[Yi Chen, analyst]

And last question. Do you intend to keep WorkSimpli throughout 2024?

[Marc Benathen, executive]

Yes, this is Marc. We're evaluating all options for WorkSimpli. We haven't made any final determinations. If we did exit the business next year, and at some point, we will exit the business, we expect it to be a substantial exit, returning a significant amount of cash back to the company, and obviously generating a lot of value for our shareholders. Something that we're exploring, but no final determinations have been made yet. But we do expect it to be substantially beneficial to shareholders.

[Operator]

Our next question is from Neil Chatterji with B. Riley.

[Brandon Carney, analyst]

This is Brandon Carney on for Neil. Congratulations on a great quarter and thanks for taking our questions. Just to start, maybe with the Zepbound approval today, maybe I could ask for some color on how the addition of new GLP-1 options accelerate the potential growth of the weight loss business.

[Justin Schreiber, executive]

Sure. This is Justin. I'll answer that. I think that the more options that our affiliated providers have to help patients achieve their weight loss objectives, the better and more comprehensive the offering is going to be. So all these approvals help us. The other drugs in this class that are also working their way through the FDA are going to help us. Liraglutide is going to be an option for some patients as well. So this stuff certainly is very helpful. I think what's more helpful, though, is going to end up being like these drugs coming off the shortage list, them being available for patients, accessible to patients, and then them being covered ultimately by insurance plans. Affordability is the #1 thing.

[Brandon Carney, analyst]

And then I guess just going back to the retention question. So you mentioned like the 25% to 30% drop off in the first 30 days. I was just wondering if there's any mitigation strategies going into pushing down that number or if you think that things like what you're just talking about will just naturally push down that number.

[Justin Schreiber, executive]

We're doing everything we can. The reality is most of these patients are coming in and signing up for this program because they've heard about a GLP-1, because they have a friend or family member or they heard about the news or read an article on it, and that's what they want. And if they find out that their insurance is not going to cover it, it's going to cost them $1,000 a month, or there's a number of those patients as well that they don't qualify for the drug. So we adhere very strongly to the label that's on these medications. So patients that are between 27 and 30 BMI that don't have at least 1 comorbidity, a LifeMD affiliated provider will not prescribe them the medications. Obviously, patients that are under a 27 BMI, we will not prescribe the medications to them. So that 30% number, it's not only patients that are not able to afford the medication or don't have coverage for the medication. There's also some patients in there that are Medicare age, so to be out of an abundance of caution and just to be very careful, like LifeMD doesn't prescribe or treat patients that are of Medicare age until we turn on formally our Medicare program. So there are a lot of people that sign up even though our technology won't let them sign up. A lot of people will change their date of birth in order to sign up for the program, and we obviously find that out when we check their ID and they see a provider, and then those people are refunded.So it's a mix. That 30% number, there are numerous reasons why those people are refunded. And I think that number can come down a little bit. But what we're more focused on is actually just doing everything we can to offer incredible care to the 2/3 of patients that end up on a therapy. And then we're also really focused on what happens after these patients reach their goal weight. And how do we keep at least 1/3 of those patients even on the LifeMD platform, interacting with one of our affiliate providers, using our technology, all the other things we offer, how do we keep 1/3 of those patients for years. And that's actually what we're most focused on right now as a team.

[Brandon Carney, analyst]

And maybe just 1 last one on the commercial insurance launch. Are you still expecting programs in 10 states by the end of the year? And how does the outlook look for further expansion next year?

[Justin Schreiber, executive]

So we're a little bit behind schedule. We thought we would have the majority of these plans in place and active by this month. I think that we will be contracted with major plans in all 10 states by the end of the year. I think it's probably going to take us -- it's probably going to end up being Q1 until we have the broad coverage across those initial 10 states. And I think we've learned a lot from this process. So as we expand the program throughout the rest of the country, I think we can do it a lot quicker than it's taken us to get these plans in place in the first 10 states.

[Operator]

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

[Justin Schreiber, executive]

Thank you for your questions and for your interest in LifeMD. We look forward to speaking with you once again when we report our year-end financial results in March 2024. Have a good evening.

[Operator]

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.