LifeMD Inc (LFMD) 2020 Q2 法說會逐字稿

Good afternoon. Thank you for joining us today to discuss Conversion Labs' Second Quarter and First Half of 2020 Results ended June 30, 2020. Joining us today is the Chief Executive Officer of Conversion Labs, Justin Schreiber; and the company's Chief Financial Officer, Juan Piñeiro. They are joined today by the company's Chief Operating and Technology Officer, Stefan Galluppi. (Operator Instructions)

Before we conclude today's call, I'll provide some important cautions regarding the forward-looking statements made by management during the call. I would like to remind everyone that today's call is being recorded and will be made available for telecom replay via instructions in today's press release, which is available in the Investor Relations section of the company's website.

Now I would like to turn the call over to Conversion Labs' CEO, Justin Schreiber. Sir, please go ahead.

Thank you, Orlando. And good afternoon, everyone. Thanks for joining us today. 2020 has been a transformational year for Conversion Labs, and it reflects the extremely disruptive shift currently occurring in U.S. health care, one of the largest markets in the world. With the rapid emergence of telemedicine, telehealth represents a massive shift in the way individuals think about and approach health care, much like how the advent of the Internet and smartphones transformed how we live and work. This opportunity is why we spent most of 2019 building out our nationwide telemedicine technology and core customer acquisition platform, but we didn't anticipate how a global pandemic would accelerate this change so dramatically. Since launching our telehealth platform late last year, we've experienced nothing short of incredible growth across all our products and brands.

As you saw in the release we issued this morning, Q2 was another record quarter for us, reaching $9.1 million in revenue, an increase of 237% over the second quarter of last year. I'm particularly excited about the growth we're seeing in recurring subscription revenue, which we'll talk about in more detail later. This is high-margin revenue and is the most important contributor to near-term profitability for the company.

The first 2 quarters have served to validate not only our vision, but also our ability to continue this growth through the rest of 2020 and beyond. And thanks to the strategic investments we've made in our brands, our people and our infrastructure, we believe that we will emerge as a national leader in telehealth. Our capabilities on platform and telemedicine, combined with what we believe to be the best digital marketing team in the U.S., makes us truly excited for what the future holds for Conversion Labs.

There is a lot more to talk about. But before we go further, I would like to turn the call over to Juan, our CFO, who will take us through the financial details for the quarter. I'll then return to talk more about our operational activity, along with some help from our CTO and COO, Stefan Galluppi. I'll then discuss our outlook for the remainder of the year. Juan?

Thanks, Justin, and good afternoon, everyone. Hopefully, you have all had a chance to read our earnings release that was issued this morning.

As Justin mentioned, Q2 was an excellent quarter for us from a financial results perspective. Our revenue in the second quarter of 2020 increased 237% to a record $9.1 million from $2.7 million in the same year ago quarter. PDFSimpli, our subsidiary brand, contributed net sales of $1.2 million, up 212% from the same year ago quarter.

Our gross profit in the second quarter of 2020 increased 238% to $6.9 million compared to $2 million in the same year ago quarter. Gross profit as a percentage of revenue in the second quarter of 2020 increased to 75.9% from 75.7% in the same year ago quarter.

Operating expenses in the second quarter of 2020 amounted to $10.1 million, up from $2.9 million in the same year ago quarter. The increase was primarily due to increases of $6.2 million of selling and marketing expenses as well as $966,000 in general and administrative expenses, $108,000 in other operating expenses and $41,000 in development costs. The increase was partially offset by a decrease of $52,000 in customer service expenses.

Our net loss attributable to common stockholders for the second quarter of 2020 was $3.4 million or negative $0.06 per share as compared to a net loss attributable to common stockholders of $0.8 million or negative $0.02 per share in the second quarter of 2019. The net loss for the second quarter of 2020 included certain noncash or financing-related charges, such as interest expense of $140,000, amortization expenses of $182,000 and stock-based compensation expense of $439,000.

Adjusted EBITDA, a non-GAAP term, totaled negative $2.6 million in the second quarter of 2020 compared to negative $413,000 in the same year ago quarter.

Now turning to our first half 2020 financial summary. Our revenue in the first half of 2020 increased 148% to a record of $13.4 million from $5.4 million in the same year ago period. PDFSimpli contributed net sales of $2.6 million, up 285% from the same year ago period.

Our gross profit in the first half of 2020 increased $132,000 (sic) [132%] to $9.4 million compared to $4.1 million in the same year ago period. Gross profit as a percentage of revenue in the first half of 2020 decreased to 70.5% from 75.3% in the same year ago period. The decrease was due to the shift in revenue mix to lower-margin supplement products as well as software sales that have a cost of sales that can fluctuate due to volatility in merchant processing costs.

Operating expenses in the first half of 2020 amounted to $14.4 million, up from $5.5 million in the same year ago period. The increase was primarily due to increases of $6.9 million of selling and marketing expenses as well as $1.8 million in general and administrative expenses, $146,000 in other operating expenses and $74,000 in development costs. The increase was partially offset by a decrease of $11,000 in customer service expenses.

Our net loss attributable to common stockholders for the first half of 2020 was $5.8 million or negative $0.10 per share as compared to a net loss attributable to common stockholders of $1.5 million or negative $0.04 per share in the first half of 2019. The net loss for the first half of 2020 included also certain noncash or financing-related charges, such as interest expenses of $242,000, amortization expenses of $460,000, financing transaction expense of $62,000, acceleration of debt discount of $0.5 million, inventory valuation investment of $769,000 and stock-based compensation expenses of $535,000.

Adjusted EBITDA, a non-GAAP term, totaled a loss of $3.2 million in the first half of 2020 compared to a loss of $641,000 in the same year ago quarter.

Turning to our balance sheet. Cash was $336,000 at June 30, 2020 as compared to $358,000 at March 31, 2020. We believe our cash position, available funds and current subscription projections provide the company with sufficient liquidity to meet our current leases. This wraps up our financial results.

And I -- now I would like to turn back to Justin.

Thanks, Juan. As Juan discussed, the momentum that we gathered in Q1 continued to grow even stronger in Q2, and this acceleration has continued into the current third quarter. As we announced earlier this month, July revenues hit $3.6 million, more than 300% higher than July of last year. July sales indicate an annualized revenue run rate of $43.2 million, which also means we are well on track to meet our guidance of more than $40 million in revenue this year.

The most exciting aspect of our growth in July was the growth of our recurring revenue from rebilled subscriptions, which increased more than 360% to $1.2 million. As the percentage of our revenue from subscriptions continue to grow, our profit margin also grows dramatically.

Conversion Labs is a direct-to-consumer telemedicine company. This is why these numbers matter. They show that we have the ability to expand into new verticals very quickly in a capital-efficient manner. Our brands have been built with one singular focus in mind: to make Conversion Labs the leading provider of quality health care in a virtual setting. It should be front of mind whenever anyone thinks about telehealth. In this end, we continue to work closely with our physicians, advisers and patients to ensure that we are providing the ultimate and quality care.

Turning to our current brand portfolio. We currently have 3 telehealth brands: Shapiro MD, Rex MD, and SOS Rx, which respectively target hair loss, men's health and emergency medication. To put our launch strategy into perspective, we initially launched in ED or erectile dysfunction simply to prove out our ability to acquire customers in this very large and rapidly growing market. Our success in the ED market validates the incredible skill set of our team and our technology platform. What we build at Conversion Labs, both platform and technology, it will enable us to quickly launch new telemedicine offers wherever the opportunity exists.

The opportunity in this space is enormous and it's lasting. And we believe what we have shown you so far is only the very beginning of what is in store for Conversion Labs. Just like the early stages of the personal computer, the Internet and other rapidly growing, disruptive technologies, there is a massive unprecedented land grab taking place in telehealth, where there are a massive multibillion-dollar virtually untapped market segments just waiting to be serviced by a telemedicine offerings.

Due to the readily apparent economies of scale, the opportunities in telehealth are really not much different than it was for the personal computer or the Internet. The largest players will eventually be the dominant forces and ultimately capture the lion's share of the addressable market. This is why in our road map for 2020, we have and are continuing to press or form a gap in order to become a leader in direct-to-consumer telehealth.

2020 has been an unprecedented year in so many ways, but it will ultimately be remembered for the COVID-19 pandemic. COVID-19 has served to hyper-accelerate the adoption of telehealth by challenging Americans and everyone around the globe to rethink the way health care can be accessed. Given that 2020 is a breakout year for telehealth, over the next few quarters, we're looking to expand to still-largely untapped telehealth markets. We plan to launch several new treatments under our Rex MD brand, expand into women's health and are also looking at other exciting opportunities within telemedicine. We believe that truly the sky is the limit here. We're driving this initiative through the continued and deliberate growth of our internal medical, technology and customer acquisition infrastructure. This includes adding incredible people to our team, like Dr. Jeremy Fine and Dr. Jeff Toll, who both recently joined our Advisory Board.

Reflecting the high quality of those who have joined Conversion Labs, Dr. Fine is an award-winning physician with more than 15 years of medical experience, innovation and accomplishments. Dr. Toll is a leading health wellness doctor, who completed medical training at Cedars-Sinai Medical Center in Los Angeles, which ranks among the top 10 hospitals in the country. Medical experts like Dr. Fine and Dr. Toll can help guide and expand our portfolio of telemedicine brands and help advance our mission of becoming a leading player in telehealth.

Now to provide an overview of what we are doing to today support our continued growth, I would like to turn the call over to Stefan Galluppi, our Chief Technology and Operations Officer. Stefan?

Thanks, Justin. Thank you to everyone, who took the time as well to dial in into this call. When we decided to target telehealth in 2019, we started by making significant investment needed to support our expansion in such a new market. What's important to note is that our objective was not to launch as quickly as possible, otherwise, we would have launched much sooner than the end of last year. Our objective was to ensure that the infrastructure, investment and development we made would support not just 2020, but Conversion Labs' growth and continued brand expansions for the next 5 years.

Internally, this meant radically strengthening our technology, our compliance and organizational structure. While painful at times, we're glad we made the commitment, especially now more than ever, as it has enabled us to launch and aggressively grow our telehealth brands far larger and faster than we originally envisioned.

Our platform is supported and driven by a team of digital marketing and branding experts, data analytics, designers and engineers focused on building enduring brands. Our platform has been designed to allow us to efficiently launch telehealth offerings whenever we determine there is a market need.

On the technology side, our proprietary IP allows us to easily expand into different categories, where our field-proven technology infrastructure enables our team to quickly build out effective acquisition funnels as well as a marketing platform that also connects our brands to online pharmacies and physicians. It has been an integral part of our transition into a 100% telehealth business.

Internally, we are continuing to build out our in-house team of rock star developers as well as our marketing, finance and customer support teams. We have been especially fortunate to have attracted incredible talent for every aspect of our company.

Last but not least, we have also invested significantly into compliance. Due to the nature of telehealth, compliance is the front-of-mind goal to ensure that we are leading the way in delivering the best care and having the most compliant telemedicine infrastructure out there.

Our Conversion Labs network of licensed telehealth physicians is now writing over 400 combined new and refill prescriptions a day, and this number continues to grow. At this stage of growth, it is now all about gaining greater efficiency and scalability with key technology that supports our expanding telehealth brand portfolio, acquisition platforms and provider network, working towards our vision of creating a best-in-class quality of care in telehealth. This is why I and the rest of the Conversion Labs team are all really excited for this rollout of Veritas MD later this year.

In May of this year, we secured an exclusive perpetual license in North America for online direct-to-consumer applications, along with nonexclusive rights globally, for the core technology that powers Veritas MD. The core platform that we acquired was developed with years of work by experts in telehealth, health care and regulatory affairs. Veritas MD has been designed to connect state licensed physicians and patients in a simple and efficient way, with features implemented to take the friction out of the telehealth process. Veritas MD will make it easier than ever before for physicians to consult with patients and provide the quality care they need.

This end-to-end health technology is highly synergistic with our existing operational platform. Most importantly, it will transition us to a vertically integrated infrastructure, allowing us to develop and deliver innovative health and wellness products while servicing our customers, all the way up the value chain.

Thanks to our outstanding team, over the last several weeks, we've been further enhancing the platform with proprietary features and bespoke functionality for our telehealth business. This integration is virtually complete, and we are now just awaiting Surescripts to approve its e-prescription functionalities, which we expect to receive in the next 30 days.

Back to you, Justin.

Thanks, Stefan. Next up, and I'm very excited about the launch of Veritas MD. It will enable the streamlined rollout of exciting new telehealth products and brands and in particular, one we call [Nava]. We plan to provide more details about Nava in a future press release. But for now, I can say that Nava is one of the several telehealth brands we've been developing behind the scene that target a large-market opportunity for women's health.

Our telemedicine platform enables a Blue Ocean market strategy, allowing us to quickly target untapped opportunities in this space. So what does this mean for our current telehealth brands? For Rex MD, that means expanding beyond just erectile dysfunction medications and solidifying its presence as a leading men's health brand. We plan on accomplishing this by introducing additional prescription and proprietary over-the-counter products we've been developing, like additional sexual health offerings and primary care. Initial product introductions will focus on sexual health in order to best leverage our growing customer base and to immediately expand our customer lifetime value.

Now for SOS Rx, which we launched earlier this year, with the health and guidance of our physician advisers, we are in the process of shifting the messaging and nature of the brand to a doctor-consultation model and one that addresses medical concerns, in addition to disaster prophylaxis. This includes travel-related illnesses, illness preparedness and others. Our launch of SOS Rx unfortunately coincided with the outbreak of COVID-19, which made it difficult to go to market with a disaster preparedness offering and hence, our refocus of the brand.

Finally, for Shapiro MD, we're continuing to build on our growing success as a leading telehealth brand for hair loss. Following the formulation and launch of 3 products in the second quarter, we are currently in the process of filing new IP for 3 new products yet to be announced for the hair loss market segment. 2 of these products were prescription telehealth offerings and one was a proprietary over-the-counter product specifically formulated by our physicians to address postpartum hair loss.

Now what can our shareholders expect over the next 6 to 12 months? Our business strategy has always been more than simply about increasing sales and generating profits. Since our inception, we've been focused on building a portfolio of brands that can provide a robust and reliable recurring revenue stream. Today, we are seeing record growth for a number of customers on subscription, which, without a doubt, is the most important component of our long-term profitability. As the revenue generated by our repeat customers continues to scale, this will drive down our customer acquisition cost as a percentage of revenue, driving strong contribution to our margins and bottom line over the long term.

Looking ahead over the next 6 to 12 months, we have a fairly clear view of what we believe Conversion Labs will look like. Rex MD will solidify its presence as a men's telehealth brand by launching up to 6 additional core men's health telemedicine offers. SOS Rx will transition from beyond the disaster space, to everything from allergy, travel-related prophylactic prescription products and more. Also, over the next 12 months, we expect Shapiro MD to emerge as the industry's leading telehealth brands for both male and female hair loss. We'll accomplish this through the nationwide launch of a personalized treatment option that complement our patented over-the-counter product portfolio. We'll also have launched the female equivalent of Rex MD, which will offer a portfolio of lifestyle telemedicine products and treatments for women.

Finally, our majority-owned subsidiary, PDFSimpli, is growing tremendously. Thousands of new user registrations are being driven by the recent increase in online consumer behavior and remote working. Instead industry-wide direct-to-consumer e-commerce sales are now expected to decline more than 24% to $17.8 billion just this year alone. While not part of our core telehealth business, PDFSimpli's unit economics are incredible, and it has experienced a massive acceleration in growth since the start of the year. Based on its growth trajectory in recent months, we believe we can aggressively scale this business over the next 12 months to reach at least a $10 million annual run rate or greater.

All in all, while the growth we have seen across the board has been tremendous, we believe we have only begun to scratch the surface of what Conversion Labs can accomplish. Given all these positive factors and trends both internally and across our industry, we're still on track to meet our full year 2020 revenue outlook of more than $40 million. Meanwhile, we see Conversion Labs' telemedicine platform continuing to drive growth and new opportunities and especially greater shareholder value over the months and years to come.

Now with that, I would like to open the call to your questions. Orlando?

(Operator Instructions) And we'll take our first question from Michael Galantino with Chapin Davis.

Great quarter. Congratulations on that quarter. Growth was exceeded our expectations. A quick question, you keep referring to the technology, the proprietary technology you guys have spent 1.5 years developing. Could you talk a little bit about what makes your platform different? As you said, it's a land grabbing, there's a number of other companies trying to tap into the market, and I guess grab the land, in the [same grab]. Can you tell us a little bit about what makes your company different than the others?

Sure. I could do that, Michael. I may let Stefan chime in as well since this is his area of focus. But my perspective is that prior to our interest in telemedicine, the company invested significant time, energy and capital into building this incredible customer acquisition platform, right? And that's a combination of technology and human capital that we acquired over the -- since really we launched this business in 2016. And so I think we believe that the key, the winners in the telemedicine space, especially the direct-to-consumer telemedicine space, it's all about patient acquisition, right? Customer acquisition. And we've built this company through that lens.

And so I would just say that my belief is that the technology and the platform that we have is really very, kind of, customer-, patient-acquisition centric, right? Which, over time, enables us to scale the business very rapidly, manage our customer acquisition costs, quickly pivot into other areas, whereas I think there are other platforms in the industry that are more built just like the kind of pharmacy perspective, it's which we have as well, like all the same technology, very similar technology to everybody else. But I think it's that focus on customer and patient acquisition that really defines Conversion Labs.

Stefan, would you like to add anything to that?

Yes. I mean certainly, I mean, really on the acquisition side, right? One of, really, the core things is personalizing the process, the sales funnels for various users who we're targeting. And it really falls in line with using that data at scale to really be able to heavily remarket customers through SMS, through email, through our call centers, that will ultimately convert prospects to patients. And then the other side of that too is retention focus, such as bringing the customer in and then being able to cross-sell them onto other Rx medications or other OTC products. That's really the 2 core focuses.

And we'll take our next question from John Formicola with Performance Capital.

Well, actually, my question was just answered. And I want to congratulate Justin and the whole Board and team for doing what they've done to date. It's been a long time since I did the communique. So I'll just pass on. Congratulations, and I'll catch up with Justin some other time. Congratulations.

John, thank you very much. Appreciate your support.

(Operator Instructions) And next, we'll hear from [Ben Patten with Toronto Investment Authority].

My question is more about the recurring revenue. I think you said you guys hit about $1.2 million in July. What percentage of, I guess, the customers did this represent as far as the total amount of customers? So $1.2 million, is that 25% of customers re-upping for a second month? Or is it 60%? I guess that's what I'm trying to back into as far as the -- what $1.2 million correlated to as far as retention with those customers from the previous month.

Yes. Thank you. We haven't spoken a lot specifically on the unit economics, other than we made a point to say that they're very good, and that was primarily for competitive reasons. Stefan, would you like to comment on -- would you like -- are you able to provide a kind of high-level response to that, the number of customers that move from initial to the second cycle?

I mean I could provide -- I mean we haven't put anything publicly out to date. I mean one comment would be that the models that we've projected were certainly significantly above where our forecasts had been, so -- and vintages, looking at data from when we first launched this, from really against the data that would be from January, we're certainly ahead of what we projected.

So I think what we would like to say, and our apologies, but we're -- just really for competitive reasons, we haven't kind of disclosed a lot of details on the unit economics, but I think what we're comfortable saying is the unit economics are great. We feel we're providing exceptional treatment and customer service. And as you know, 100% of these customers on the telemedicine side of the business are on the subscription. So there's just very -- the dissatisfaction rate is very low, and these things generally work for everybody that uses them. So the unit economics are very strong, and we'll provide as much detail as possible on that in the future when we're comfortable disclosing that information.

And up next, we'll take a question from Steven Gart with John Locke.

I guess this makes #4 for congrats on a great quarter. I'm not -- I'm new to the company, so I apologize if I'm asking anything a little naive. But I just wanted to know if you could, maybe to the degree you can, talk to the cadence of subscription growth over Q2 and maybe into the beginning of Q3? And considering you're growing top line at north of 200% this year, is it too early to provide some kind of a preliminary sense for guidance for 2021 revs? And then my final question would be, do you have any -- can you talk about any plans for uplisting to an exchange? Anything like that as you gain this kind of momentum in top line?

Sure. Yes, sure. Well, I think like it's very difficult these days, right, to be -- to trade on the over-the-counter market, and especially when many investors can't buy the security. So it's definitely a near-term priority for the company to uplist to a senior exchange in the U.S. Clearly, from a market cap standpoint, we're where we need to be, and we also have a couple of years of strong revenues. So the share price requirement for us is lower than it would be for many companies that are going to uplist. So that's a very big priority for the company that we would like to get done as soon as possible.

As far as guidance for next year, we haven't really put formal guidance out there. But I think that it would be -- yes, so we haven't put formal guidance out there, but I'll just say this, given kind of where we're at right now, assuming that the current trends continue and something doesn't go harshly wrong, that which we think is highly unlikely, it would be pretty tough for us, given our current run rate, to not be at least in the $75 million to $100 million range in revenue next year, right? Just because of the -- as you -- it's a subscription business. We continue to onboard a large -- acquire a large number of subscription customers every day. So these things grow very quickly.

And I would just say we have my kind of forecast for next year. Don't look at how quickly like trend has grown, right, which is a lot of information out there, but they're irrelevant, right? I mean how quickly telehealth has grown, from sub-$50 million run rate to $250 million. So I would say that -- I will tell you those stats, maybe have a very similar business model. I mean if you think about it from -- if you think about like any subscription, if you look at any business model, right, where you have a great product that customers like, and everybody's on subscription, kind of the Dollar Shave Club type of model, I mean, the growth rates for these things don't change. And if we think about what we're selling, we're offering incredible health care to people in their home, which they need, which almost always works. Why would you -- you know what I mean? Why would you cancel? I guess some people might cancel and shift to like a lower-priced product? But otherwise, you've got a great doctor, why would you -- that you really like, and there's no real reason to switch.

So we think this thing is going to scale very rapidly. And we'll definitely get some projections out there in writing.

I'm personally in the same position. [I’m about to look] to obtain my current doctor. Just one quick question, are you seeing -- so it was part of my original question. Are you seeing sequential monthly revenue growth in Q2 and into Q3? And if so, do you see it sequentially going up for the rest of the year? Or is it -- are you comfortable in this $3 million to $4 million range per month?

I think it's -- well, it has to go up for us to hit our -- the numbers that we've -- the estimate that we've put out for the year. So I mean, the reality is, acquisition of customers online can fluctuate over a couple of week or a month time period. But overall, like we have a subscription business that's just growing, right, because we -- every day, we're just adding more and more people on subscriptions. So yes, we do see the numbers certainly, over time, growing. They can go up and down quite significantly for a week or 2 here, right? So we'll -- I mean every single month when we see massive growth, yes, I don't know that we're comfortable making that statement just because of the nature of this business, it goes up and down.

But certainly, over time, right? Quarter-over-quarter, we're going to continue to build this high-margin subscription to fund the business, and we're certainly going to continue to acquire customers. We're going to be launching new products, both on the telemedicine side and on the over-the-counter side. And so, yes, I think we're going to definitely continue to see growth quarter-over-quarter.

All right. And then just to, again, to redirect to the uplisting, do you see that as a 2020 event?

I hope so. I hope so. I mean I can tell you that we're extremely well-positioned to get that done and bring in some very high-quality long-term capital. The capital that we're talking to is just some of the highest-quality capital sources you can find. And obviously, I think a lot of people know that the company could have gone out and done like a very quick deal, which might have been good for the market. And we're really -- we're doing the right thing for shareholders. And I've made a commitment to -- when I talk to people, I'm happy to say in this forum, right? Like one of my -- the main reasons we've seen this great increase in value of our equity, it's because we've made smart capital market decisions and we're going to continue to do that.

So in a perfect world, we find an incredible investor that's very long-term and uplist very quickly. If it takes me a couple of extra months just because I have to find the right investor or get this done the right way, that's a possibility, but it's -- I mean it's one of my biggest -- one of our biggest priorities.

Okay. And then just kind of (inaudible) one final one. Talk in terms of target gross margin, near, medium and long term. It looks like you're in that 70%, 75% range. Do you see it staying there as you roll out additional products and make more customer acquisitions and grow? Or how do you see that shaping up?

Juan or Stefan, would you like to comment on that?

Yes. I can definitely comment on that. So regarding some of the cost of the products that we sell, when it comes to shipping and merchant processing costs, we really do not expect any sort of fluctuation on that, on those fronts. But the cost of products may vary depending on the product that we are actually selling. If it's a premium product, obviously, the cost of the product is going to be higher, therefore affecting the margins. And there's room for fluctuation, but we have a strong focus on keeping it in between 70% to 80%. We would like to be closer to 80%. We're at 75%, and we're happy there. But the fluctuation that we could see in regards to -- so the margins would be for particular products.

I think the answer is -- [now coming onto the question, we are] a very top platform as well once we internalize the physician network on board, our own physicians as well, we should significantly bring down our costs there, so that will certainly help the gross margin.

Excellent. And again, congratulations on a [splendid] year.

Yes. Thank you.

Thank you. Thank you.

And next, we'll take a question from [Jonathan Alvarado], a private investor.

For the Veritas MD product, does that require a lot more investment to launch that? Or is that pretty much done?

No. So we are in the final phases of the development there. All the features that we really took in as we built out from the initial product that we acquired really are heavily focused on more of the asynchronous consults and making the system robust so that it can support scalability, anywhere from 1,000-plus consults a day, reporting and all the tools that we need to just be more efficient at scale. But that's in the final stages of development. The plan is to be live in 47 states within in 60 days, I guess.

And then just selling and marketing has increased about 4x. Is that going to continue at that same pace of increase? Or is that...

We can't -- look, it's all about the unit economics. So initially, with the telemedicine business, we go into the red a little bit upfront because we have to acquire the customer and then we have a consult cost. But as the subscription business builds over time, the contribution margin increases dramatically, right? So the answer to your question, we continue to acquire -- we will continue to acquire aggressively. But we expect -- but if we can stay on the current trajectory, the actual acquisition burn rate of a company will decline significantly.

Now the one thing that I will add to that is, look, if we can choose between -- if we know we have incredible unit economics, right, and we have to choose, let's just say, in the fourth quarter between being profitable or we have access to very inexpensive capital, and we know that we can take it and acquire another 10,000 or whatever -- 25,000 customers, if the unit economics are proven and we have access to inexpensive capital that makes sense for shareholders to take, we're going to choose growth, right, over showing profitability. And our perspective on this is just we want to acquire as many patients as possible. We've proven out the unit economics for our business already. We know we have a solid and a profitable business model. There's no doubt about that.

So I mean this kind of -- it's a little bit tough to say when we actually reach profitability. But the name of the game for the company is just continuing just to launch new products in telehealth, two, to build market share, and that's how we will create the -- that's how we will maximize shareholder value.

I just had a question about the Laser Cap. I was just wondering how that was doing.

The Laser Cap's good. It's -- I don't have the exact numbers to share with you on that. But it's an extension, right? So we -- I mean we sell Laser Caps on an ongoing basis. A lot of people who buy our Shapiro MD hair loss products, they choose to purchase the Laser Cap as well. We also know that the opportunity on Amazon is pretty significant based on what some of our peers are doing with that product.

So we've been in the process of launching this with Amazon. It's taken longer than we thought. But I would say it's been okay. Look, it's a profitable product, and we're proud that we have it as part of the portfolio.

And next up, we'll hear -- have a question from [Robert Bransford], a private investor.

Hey, Justin. Congratulations on a great year so far.

Thanks, [Robert]. Really appreciate it. Thanks for dialing into the call. Good to hear your voice.

Sure. Sure. Same here. So I went through the Q kind of quickly this weekend, but it appeared that there was an estimate of about $4 million of liquidity needs, I think, by the end of the year. And it also looked like there might be about $2 million that would be a possible warrant exercise proceed. Can you comment on that? And I know you're reluctant to forecast being positive cash flow, but was the plan to bridge from where we are now to being free cash flow positive?

Yes. We just -- so yes, yes, happy to answer both of those connections. I would love to talk about the warrants. We did have a warrant exercise in the last -- over the last couple of weeks. We had some shareholders that had been exercising warrants, which was very helpful to the company and helps to clean up the capital structure and bring in some cash. So I think that, probably all in, I think that will probably bring in, I'm just going to throw a ballpark number, around $2 million.

And so -- look, we -- the company -- the capital for this company is all about -- the amount of capital that we need, [Robert], is all about how quickly we want to grow the business. And it goes back to what I just said in my prior answer, I mean, we know we have great unit economics. We know that we spend x, we get y, and y is much bigger than x. Could we -- I mean I'm sure we could probably get by and even stay on the current run rate with a very small amount of money. But I mean, we don't -- we think we have something special here that if we can scale it up much more aggressively, it makes more sense.

And so it goes back to, again, like our focus is on figuring out a way to communicate to The Street, when we have great, these great unit economics, and it makes sense to just continue to build this business. Because these patients are going to be incredibly valuable, right, and they have family members, and they -- and just because someone's at hair loss, like we have our skincare telemedicine offering, or we have another women's health product or birth control offering or diagnostic tests. I mean we're primary care, right, and they're very, very, very valuable, right? So we just we want to continue to do whatever we can to acquire patients, if we know that that's -- if we know that those economics are great or as good as they are.

So I mean, the answer to your question is the opportunity, as we said it probably 20x on the call, the opportunity out there right now in this space is enormous. Even with some of the big players that most people know about and are familiar with, it's just incredible. I think this is going to change so many different indications within health care. And even just -- I mean, forget all the other indications, that even just the lifestyle that men's health, just the men's health lifestyle, this is a multibillion-dollar opportunity for us alone. And so, we're going to opportunistically bring in capital that we believe is accretive to shareholders and makes sense, right?

And I guess the only thing that I would really like to reinforce is like we're a management team that cares about the equity. I mean we don't -- there's no big salaries in this company. We work for our equity that we have in the business. And so when we make decisions, it's not a decision like, "hey, let's just go out and drop $25 million because we can, because our stock is very liquid". You know what I mean? "And then we know we're going to get a paycheck for the next 5 years". Our decisions are like, well, if we do a deal here, how much equity are we going to sell, what's the cost of capital. And if we deploy this capital in our business, what is the return for shareholders, right, of which we're one of the biggest. So I'm sorry, that's long-winded, but that's just kind of my -- from the heart, my perspective on it.

I appreciate it. Just one quick other question. The revenue run rate is obviously going to be raising some eyebrows. Are there any natural consolidators out there in this new growth sector of telemedicine?

I'm sure there are. I mean I think, perhaps, the most natural consolidators are -- I mean, if you think about how this is changing, right? Telehealth is changing the business model for even a large pharma and a [medical life] company, right? I mean the thousands of people out on the field that are very expensive, and you know what I mean, you're visiting doctors, like why -- I mean, think about how telemedicine can disrupt a lot of these very big revenue streams. And I can tell you that all these pharmaceutical executives now are looking at this, "Well, how do we do this?"

So how would you start? If you were one of these companies where you had a multibillion-dollar revenue stream, you couldn't build what we have in a year. You know what I mean, I mean, it's -- it would take real time and there will be real risk that if you build a [sub], can you acquire the right people to do what we've proven we can do. So the answer is it's really difficult, and why take that risk when you could just go out and buy a company like Conversion Labs that has a proven platform and a team that you could lock up for a few years, that you know is best-in-class.

So I think there's a ton of people out there that would like to build -- to buy probably the status platform that we're building. I think for a little -- I think it's a little early right now. But I think as we scale this thing and we're closer to 100 -- at or closer to or at $100 million year run rate, I think it's pretty interesting, right, especially once we have a couple more products out there. We've heard that [we’re not seeing in Geneva], we're doing this in our other indications. And then we also -- the Veritas platform, once we get that up and running, I think that adds an incredible amount of value to the company once we've proved that out, which Stefan has done a great job on, and that's right around the corner.

A lot of -- a lot of really fortuitous things have happened to this company. And just to give you an example, like with Veritas, I mean, so that platform was built, and this is what we were told by, I would say, one of the founders of a very, very large telehealth company that everybody knows. And it was built for another company that was providing a solution to doctors to basically convert their practice into a telehealth business. And almost $2 million was put into this platform over years and years and years of development and regulatory experts and like great minds working on this thing. And we were able to buy this thing for -- we were able to buy this thing for some options in the company, and I think it was a sub-$200,000 cash payment. And I can tell you that some of our peers, I mean, my guess would be that they spent at a minimum of $1 million, if not $5 million or $10 million, to build this thing. I mean it's very, very valuable. And it's just the stuff that you can hire developers, but as anybody knows that's managed a large and complicated project like this is, you have to get these things done and work out the bugs overnight.

So again, and Stefan mentioned this earlier, but building this vertically integrated platform, where we have everything that somebody needs to launch a nationwide telemedicine offer and we're sure we can do it, we think it's really valuable.

Justin, again, congratulations to you and the team on a great year. Keep up the good work.

Thank you, [Robert].

And up next, we'll hear from [Joseph Withrow], a private investor.

Bravo, your year-to-date for 2020. Just a 2-part question. Have you considered talking with corporations about making this an employee benefit for their employees to lower the cost to maybe capture new patients? And the second part of my question, with your partnership with a couple of names, but have you considered any future, not near future, but looking at adding to the same households for existing patients, pet meds and the veterinary network?

Yes. Thanks. So I think, in response to your first question, I mean, going after large employers which are probably self-insured is more of a teledoc-type of business model. We just -- we really have a big opportunity in the direct response telemedicine space, an enormous opportunity. Just we want to stay focused, and always, if we can just build some market share there. It doesn't really make sense for us right now to look at player groups and players and trying to compete in that space.

Your second question, as far as the pet space goes, I've actually personally done a lot of work and done a lot of research in this space. I don't really know, it's a very different regulatory landscape than with humans. And we walk with that space. One of our investors is actually a very, very large direct response pet care and supplement company. And it's just the big problem with that space is you have to -- I mean, you have to -- in most states, the veterinarian has to actually physically examine the pet in person in order to write a script. And veterinarians generate a large portion of their income from the sale of prescription medication. So it's kind of a political issue where, right now, it's pretty tough to -- from what I understand, it's pretty tough to work in that space.

So we're open to it longer-term of partnering with sort of a company that we're starting -- been a great investor and supportive of our business. But right now, we don't have any plans to enter that space. Great space, though.

And on the first part -- the first question, I was thinking more of small and possibly medium-sized businesses because they don't have employee benefits to offer around the health sector. So if hair loss or different things that you could provide, and they're not providing anything and maybe something then that they offer annually to their employees, sort of small and possibly, medium-sized businesses, but I appreciate your answers.

Yes. Yes. Thanks. We'll keep it in mind. We appreciate the thought.

And up next, we'll hear from [Antonio Bautista], a private investor.

Yes. I was on mute. Apologies. Congratulations for a great quarter. I see your numbers were excellent. And a couple of questions from my end, and I think one of them you already addressed, but I didn't hear the time horizon. Uplisting to NASDAQ, is that something that you guys are looking into, and do you have a time horizon?

I don't like to put out a time horizon, but the answer is we would like to get to a senior exchange as soon as possible. So...

Would I be able to -- rather is it this year or next year?

I would hope for this year. But again, there's a few things that have to happen. The most important is just putting the right capital in the company and making sure we meet the shareholders' equity requirement for NASDAQ.

Makes sense. The other question would be, do you foresee raising capital through common shares? And do you think that would have an impact in shareholder value?

Well, I think we have to -- if we're going to -- if we want to list in a senior exchange, we have to do an equity deal, right? I mean we -- the company actually has some -- a lot of debt that's available to it, which is an expense. And this goes down to like the right strategy. So I think the ideal strategy would be we bring in an incredible blue-chip investor or a blue-chip bank that is a long-term investor, that doesn't -- isn't just in this thing to sell the stock and make 30% of their money in 60 days, right? So the perfect scenario would be to find a high-quality long-term investor, do the right deal for the company that results in our shares appreciating and value not depreciating in an ideal scenario and then list on the NASDAQ.

I mean again, if we didn't have the right capital available to us, we would -- well, maybe we would look at -- I mean, we're not going to do something -- we don't intend to do something that's incredibly dilutive for shareholders, right, and it's going to just put a lot of near-term pressure on the share price. We really want to think long-term here in bringing the right money and get a listing done at the same time.

Those are the only 2 questions. I just wanted to commend you guys to the way you are managing the business and the lack of bombastic statements, which I think is welcome in a world where everybody talks too much about COVID. So keep up the good work.

Thank you very much. I appreciate you being a shareholder.

And up next, we'll take a question from [Paul Ragosta], a private investor.

I have been kind of affiliated with at least the predecessor company, which is called Immudyne. I imagine there could be a lot of people on this call that remember that. And for a long time, I didn't even look at that stock price because I didn't even count it as part of my portfolio. Recently, you've all got our attention obviously with the increase in the stock price, which has been nice. But hopefully, you make us all wealthier than we are as we're talking at some point.

But I -- some of these questions you might have answered, so you can give me the very CliffsNotes answer. I'm fine with that, and I can read into it myself later. But my general question is, is this revenue sustainable?

The answer is yes. 100%.

Now marketing costs were quite high. And you might have answered this, I apologize if I'm asking you something you've already answered, but why are those costs so high? Is it structural in your business model, with your financial model?

Well, marketing costs are high because, again, we have to spend. We're a direct response company, right? So we have a significant expense upfront to acquire this customer that has a much greater lifetime value than what we pay to acquire the customer. So we think, over time, we'll actually get what we call our customer acquisition costs. We think they will -- we think that by expanding the -- into the places where we're running advertisements, we think that we'll actually -- we could lower those acquisition costs. But right now, they're always going to be high upfront.

We also have to pay for the physician consultation upfront. So the whole thing with this business is what's the retention like, right? How -- once we -- once someone sees one of our doctors and is prescribed a prescription medication and maybe an over-the-counter product, how long do they continue to use that product? And right now, we're 6, 7 months, I guess almost 8 months, 8 or 9 months now into this, but the advantage data that we're seeing is really good. We -- and we can -- we haven't shared this in detail for competitive reasons, but we -- again, we -- we're fine with high acquisition costs, right, as long as we know that we're making a lot more money than what we paid to acquire the customer down the road.

So is there a direct relationship between those acquisition costs and revenues?

100%.

And is there a point where -- is it -- well, maybe I'll put it to you this way. What type of revenue does this company need to actually have an EPS, to have an earnings per share? What type of revenue do you have to achieve? Based on -- I'm not speculating on what you might get, but under the present model, with your expenses...

I think the easiest way to answer your question is, I mean, if we stopped acquiring customers tomorrow, you know that the company would have earnings. It's just the only reason that we don't have earnings is because we continue to grow the business and acquire new customers. And when we do that, we go into the red upfront. And so it really just depends on the growth rate of the business and how aggressively we acquire. That's what's going to determine when we actually achieve profitability.

But I can tell you that the company is -- again, we haven't put out guidance on profitability because we don't think it's the most important metric for shareholders and ourselves to focus on, right. We're more concerned with are we -- what are we paying to acquire customers, and do we have great unit economics behind those customers?

And just to go back to your first question, we're not seeing significant growth in our fixed overhead, right? I mean it's a day-to-day technology platform in many ways, and it has -- I mean, that we're using to provide medical treatment and sell patented and proprietary products to consumers, it scales like a SaaS business, right? So we have this core team, and this kind of sticks overhead, obviously grows a little bit. But other than maybe customer service and call center like as we really scale this thing, the variable acquisition costs will scale as the business grows, but you also have subscription revenue like really catching up.

So I think the answer to your question is like it's very possible, right, because near term, we see profitability with the company. Even this year, we've seen net profitability. But again, we need to look at the opportunity on the growth side, right, and what our cost of capital is and make kind of the right decision there.

Sure. So as far as raising capital, and I apologize if you've already mentioned this, do you see the need to raise through a public offering or to put out even more stock?

I mean I really -- I would like to just not -- I think it's unwise to -- look, I'll go back to what I said previously, right? We're, first and foremost, holders of the common equity of this company. We need to do an equity offering in order to get to a senior exchange. But if we wanted to do something that was going to be a bad deal for shareholders, we could have done it already.

So we're very, very focused on doing a deal that adds value to shareholders. And that really propels long-term growth, and it brings in a long-term investor. And I think, look, I think you've seen this, right, for the legacy -- I mean, we sold the legacy assets out of this company in 2018. You know what I mean? We've gone -- we feel that we've done an exceptional job protecting the capital structure, especially given that we kind of started with a clean slate and brought in a whole new team of people. And we've tried to incentivize them appropriately, but also like really -- we really tried always, as with the Board, to do the right thing for all these legacy shareholders. And we're going to continue to -- we really appreciate all of our shareholders.

And I mean, we're going to continue to do what's in your best interest, and we're a big share -- we're the biggest shareholders. Stefan and I and Juan and the whole team, I mean, this -- look, all I'll say to you is we will do everything possible to protect the capital structure and maximize value for shareholders. And I mean, we believe we can build a really big business here. I mean the opportunity are not just words, right? I mean if we can execute a little bit of dilution here by bringing a long-term investor that gets us to a senior exchange, which, by the way, would greatly enhance the value of every one of our shares, I mean, it's a no-brainer. So that's what we're focused on doing.

Great. I'm sorry to monopolize the time. I know people have other questions, and I think things are promising, and I'm glad I participated in the call.

Thank you. Appreciate your support.

At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Schreiber. Sir, please go ahead.

Thanks, everyone, for attending our call today. Thanks especially to our shareholders who have joined us during the most exciting time of our company's history. And be well and stay healthy.

Orlando, please go ahead and wrap up the call.

Thank you, ladies and gentlemen. Now before we conclude today's call, I would like to provide the company's safe harbor statements that include important cautions regarding forward-looking statements made during today's call. The information that the company has provided in this conference call includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 as amended, regarding among other things, the company's plans, strategies and prospects, both business and financial.

Although the company believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, the company cannot assure you that it will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Many of the forward-looking statements made during this conference call may be identified by the use of forward-looking words such as believe, expect, anticipate, should, plan, will, may, intend, estimated and potential, among others. Important factors that could cause actual results to differ materially from the forward-looking statements made during this conference call include market conditions and those set forth in reports or documents that the company files from time to time with the United States Securities and Exchange Commission. All forward-looking statements attributable to Conversion Labs, Inc. or a person acting on its behalf are expressly qualified in their entirety by this cautionary language.

Before we end today's conference call, I would like to remind everyone that this call will be available for replay starting later this evening and running through August 31. Please refer to today's earnings release for dial-in replay instructions available via the company's website at www.conversionlabs.com.

Thank you for joining us today. This concludes the conference call. You may now disconnect.