LifeMD Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 8, 2023

There are 7 speakers on the call.

Operator

Afternoon. Thank you for joining us today to discuss the results for LifeMD's 3rd Quarter Ended September 30, 2023. Joining the call today are Justin Schreiber, Chairman and Chief Executive Officer and Mark Beethoven, 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 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.

Operator

These risks and uncertainties are described in the company's 10 ks 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.

Operator

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.

Speaker 1

Thank you, and good afternoon, everyone. After the market close, we issued a press release announcing our Q3 results Ann posted an updated corporate presentation on our website at ir. Lifemd.com. LifeMD had a tremendous 3rd quarter with record revenue and profitability. Our core telehealth operations produced extremely strong results In both our lifestyle healthcare businesses led by Rex and Dee, our men's health brand and our rapidly growing virtual primary care business led by growth in our GLP-one weight management offering.

Speaker 1

Our RexMD business grew 12% versus the year ago period with a net margin of 38% in the 3rd quarter. The performance of our GLP-one 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 work simply. 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.

Speaker 1

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 $24,000,000 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-one 4, expanded therapeutic options within the GLP-one drug class, including generic liraglutide and FDA approval, which happened today of Manjaro for weight loss in adults with obesity and 5 new growth channels from partnerships that are already in the works.

Speaker 1

2nd, we remain focused On making substantial progress in the growth of our B2B enterprise program. As we announced during the Q3, 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.

Speaker 1

3rd, 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 1st consult in Q4 and we'll be rolling out commercial 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 We 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.

Speaker 1

And our 4th 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, Work Simply 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.

Speaker 1

Moreover, Work Simply 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. Work simply 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 Work Simply 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, Mark Benethen, who will provide a summary of our financial results.

Speaker 1

Mark?

Speaker 2

Thank you, Justin, and good afternoon, everyone. LifeMD had record 3rd quarter performance on both the top and bottom line with consolidated net revenues growing to $38,600,000 and consolidated adjusted EBITDA growing to 2,800,000 Additionally, we ended the quarter with over $15,000,000 in cash and our 2nd 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 Q3 of 2023. As I mentioned, revenue in the Q3 totaled $38,600,000 an increase of 23% compared with the same year ago period and up 7% versus the 2nd quarter.

Speaker 2

Total telehealth revenues grew 14% versus the 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 Work Simply active subscribers increasing 14% to over 170,000 both versus the year ago period. Consolidated gross margin for the Q3 was a record 88%, up 300 basis points versus the prior year period. Gross profit for the quarter totaled $33,800,000 an increase of 27% from the year ago period.

Speaker 2

Operating expenses for the Q3 totaled $38,400,000 an increase of $4,600,000 versus the 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 3rd quarter included $5,200,000 of non cash expenses associated with stock based comp, non cash interest, Depreciation and amortization expenses. Our GAAP net loss attributable to common stockholders for the 3rd Quarter totaled $6,900,000 or a loss of $0.20 per share. This compares to a GAAP net loss attributable to common stockholders of $8,100,000 or a loss of $0.26 per share in the Q3 of 2022.

Speaker 2

Adjusted EPS is a non GAAP financial measure that Excludes non cash expenses, dividends, stocks and insurance acceptance readiness, litigation expense, non controlling interests, M and A expenses, financing transaction costs and foreign currency translation. Reflecting those adjustments, Adjusted diluted EPS for the Q3 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 $2,800,000 in the Q3 of 2023. This compares with an adjusted EBITDA loss of 806,000 in the same year ago quarter. Cash and cash equivalents totaled $15,300,000 as of September 30, 2023.

Speaker 2

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 $148,000,000 $149,000,000 and adjusted EBITDA between $10,000,000 $11,000,000 including the estimated impact of approximately $4,000,000 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.

Speaker 1

Thanks, Mark. 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've constantly stressed our commitment to building a best in class telehealth technology platform. I believe our Q3 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.

Speaker 1

Our GLP-one weight management offering, in particular, has exceeded all of our forecast and we're just getting started. Looking ahead, we are in a position of strength. With the ongoing success of our businesses, Work Simply and our planned B2B partnerships, we expect to deliver even more impressive 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 and A.

Speaker 3

Thank you.

Operator

At this time, we'll be conducting a question and answer Our first question comes from Sarah James with Cantor Fitzgerald. Please proceed with your question. Sarah, are you there or are you muted? Your line is live with the speakers. Sarah James, are you muted?

Operator

David, are you there?

Speaker 4

Yes. I can hear you now. If you recall 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 $20,000,000 annual sort of trend for your weight management program with 15,000 lives?

Speaker 2

Yes. We're currently at about 16,000 plus lives at about $129 a month as the pricing. So That's where you got to the $24 ish million

Operator

that we quoted.

Speaker 4

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

Speaker 2

Yes, this is Mark. 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 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 Folsom guidance within the next couple of months. As far as retention, There is a little bit of the initial fall off, which we've talked about before in the range of around 25% to 30% within the 1st 30 days entirely due to Insurance coverage and the cost of co pay.

Speaker 2

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 wave management. And as I think folks may recall from earlier calls, we've 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.

Speaker 4

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 you benefit, will your margins benefit from that if and when that happens? Just any thoughts there?

Speaker 1

Sure, David. I mean, 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 another the first GLP-one Coming off the 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 third of patients that we end up refunding right away Because of access and cost issues.

Speaker 1

I'm also very optimistic. I know this is controversial, but I'm optimistic that throughout next year, prices there continues to be downward pressure on prices Within the kind of GLP-one category, even today we saw the approval we saw Eli Lilly's approval Of Manjaro for weight management and there's some thinking right now that what we saw was that they expect Price at around $1,000 a month and with a 50% discount coupon. So we're Over time, prices are going to come down the drugs. LifeMD is also going through the process of contracting with Major insurance plans across the country, we think that being in network is going to enable us to 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.

Speaker 1

And as you know, 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.

Speaker 4

Right. 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 sort of weight management program, would they be able to do that? And just what are your thoughts on CGMs?

Speaker 4

Do you have a program in place to use them with health coaching? Thanks very much.

Speaker 1

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 doing pilot we're also working on we've done pilot programs with other companies that we haven't 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 one of these kind of 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-one medications, I think it's also important that we offer coaching and nutritional advice, which is something else that we're working on, which It's interesting in the pilot that we did with Medifast, Medifast also has an amazing coaching network throughout the United States.

Speaker 1

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 on to our existing technology platform That would help patients kind of 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.

Speaker 4

Okay, fantastic. I'll hop back in the queue. I don't want to take up all

Speaker 1

the time here. Great quarter. Congrats. Thank you. Thank you.

Operator

Our next question comes from Sarah James with Cantor Fitzgerald. Please proceed with your question.

Speaker 5

Hi, guys, and 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 a ROI perspective, how do you think about allocating that staff time between weight management and primary care?

Speaker 1

Thanks, Sarah. This is Justin.

Speaker 2

That's a

Speaker 1

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 or 500 resumes that have come in over the last couple of months As we've scaled the medical group, as a result of the growth of our GLP-one weight management offering, I'm not concerned at all. We have we're in the process of onboarding another 3 to 5 providers over the next couple of weeks. That's going very well.

Speaker 1

I think that you're going to yes, 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.

Speaker 5

Got it. 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-one 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?

Speaker 1

I think it's too early. I mean our patients are still having there's still issues With coverage, these medications, there's still supply issues around still supply issues, patients are Oftentimes struggling to find them in neighborhood pharmacies. So I'm not familiar with those kind of legislative Initiatives, but we're of course all for that LifeMD. I mean 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.

Speaker 1

But Yes. Based on what we've been seeing over the last 12 months, I find it highly unlikely that we're not going to see Renounced long very positive long term outcomes from these therapies.

Speaker 5

Great. 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?

Speaker 1

We don't 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 number one Service that is cross sold and by 2 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 like specific numbers I'm prepared to share today, Sarah.

Speaker 5

Okay. Thank you.

Operator

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

Speaker 3

Thank you for taking my questions. So the weight management revenue more than quadrupled versus 2nd Quarter, do you think that's primarily because some of your competitors do not offer this product or because Do you have some unique combination of offerings that's available at LifeMD?

Speaker 2

There are a number I mean, there are

Speaker 1

a lot of other companies, telehealth providers offering this Products. So no, I don't think that's the reason for our success. I think that demand there's very, very high demand Across the country for these drugs because of their efficacy. And I think that LifeMD is doing an X has one has a Already has a very strong brand out there that people recognize. And I think we're doing a great job at bringing patients in, getting them Helping them access amazing care.

Speaker 1

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.

Speaker 3

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

Speaker 2

Yes, it's Mark. 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. I mean as the numbers get bigger, obviously, you would end With a completely insane number.

Speaker 2

However, I do expect in the next quarter to see In Wave Management, more than 100 percent 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 2024 and 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.

Speaker 3

Thank you. And last question, do you intend to keep WorkSafeWay throughout 2024?

Speaker 2

Yes, this is Mark. We're evaluating all options for work simply. 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 Shareholders, something that we're exploring, but no final determinations have been made yet, but we do Expected to be substantially beneficial to shareholders.

Speaker 3

Got it. Thank you.

Operator

Our next question is from Neil Choudhary with B. Riley. Please proceed with your question.

Speaker 6

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

Speaker 1

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 of these approvals help us.

Speaker 1

The other drugs in this class that are also working their way through the FDA are going to help us. Leriglutide 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, then being available for patients, Accessible to patients and then being covered ultimately by insurance plans. Affordability is the number one thing.

Speaker 6

Right. And then I guess Going back to the retention question, so you mentioned like the 25% to 30% drop off in the 1st 30 days. I'm just wondering if there's any mitigation strategies Going into pushing down that number or if you think things like what you're just talking about will just naturally push down that number?

Speaker 1

There's some 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-one because they have a friend or family member or they heard about in 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 Or just not they don't qualify for the drug. So we adhere kind of very strongly to the label that's on these medications. So Patients that are between 2730 BMI that don't have at least one comorbidity, a life MD affiliated provider will not Prescribe them the medications, obviously, patients that are under 27 BMI, we will not prescribe the medications to them.

Speaker 1

So That 30% number, it's not only patients that are 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 those 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.

Speaker 1

The 30% number, there's a mix of There are numerous reasons why those people are refunded. And we would 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 Yes, to the 2 thirds 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 like how do we keep at least a third 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 a third of those patients for years. And that's actually what we're most focused on right now as a team.

Speaker 6

Great. That's really helpful. Thanks. And maybe just one last one on the commercial insurance launch. Are you still expecting programs in 10 States by the end of the year?

Speaker 6

And how does the outlook look for further expansion next year?

Speaker 1

So I would 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 have major plan 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.

Speaker 1

So as we expand the program throughout the rest of the country, I think we can do it a lot quicker It's taken us to get these plans in place in the first 10 states.

Speaker 6

Got it. Yes. Thanks for taking our question and congratulations again on a really great quarter.

Speaker 1

Yes, you're welcome. It's our pleasure.

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.

Speaker 1

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.

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