LifeMD Inc (LFMD) 2021 Q4 法說會逐字稿

Good afternoon. Thank you for joining us today to discuss the results for LifeMD's Fourth Quarter and Year ended December 31, 2021.

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. I'd like to remind everyone that today's call is being hosted via webcast, and the recording will be made available via the link in today's press release, which is available in the Investor Relations section of the company's website.

Before we begin, I would 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 the company's actual results to differ materially from those projected. These risks and uncertainties are described in the company's 10-K and 10-Q filings and within other filings that LifeMD may make with the SEC from time to time. Forward-looking statements made during this call are based on current information available to the company as of today, March 7, 2022. 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 the 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 would like to remind everyone that today's call is being recorded and will be available for replay in the Investor Relations section of the company's website.

Now I'd like to turn the call over to LifeMD's CEO, Justin Schreiber. Please go ahead.

Thank you, operator, and good afternoon, everyone. Thank you for joining us today to discuss our fourth quarter and year end 2021 results.

2021 was another year of outstanding achievement for LifeMD. Numerous accomplishments throughout the company characterize 2021 for us, including triple-digit growth in revenues across both our Telehealth and WorkSimpli segments. Record growth in new patient subscribers, the launch of our tele-dermatology brand for women, Nava, the beta launch of our virtual primary care platform and the successful completion of a financing transaction that we believe will capitalize LifeMD permanently to achieve profitability and the fulfillment of our mission to change health care.

Our revenues, which we preannounced in January, were up 149% over the previous year to a record $93 million for the full year. All of our performance metrics underlying our record-breaking year were strong as well. Gross margins, average daily rate of new subscriber acquisitions, customer acquisition costs, revenue from rebuilds of existing patient subscribers and subscription revenue as a percent of total revenue, all achieved record levels of performance in 2021. Of note, during a year when media rates rose exponentially versus 2020, our team was able to successfully drive a 23% reduction in customer acquisition costs, while also achieving the aforementioned record performance in top line growth metrics and new patient sign-ups.

I believe these record achievements encapsulate the LifeMD difference. Our superior ability to efficiently and effectively attract and retain patient subscribers in a variety of consumer and advertising market conditions. As we recently outlined in our first annual Investor and Analyst Day in February, we remain focused on our pursuit of aggressive long-term growth and revenue and rapid expansion of our operating margins with the goal of obtaining $250 million to $300 million in net revenues by 2025 with at least 25% adjusted EBITDA margins. In addition to the continued strong growth and performance of our core lifestyle-oriented health care brands, Rex, Shapiro and Nava, we are equally excited about the newest additions to the LifeMD telehealth platform, Cleared and our virtual primary care service, LifeMD. Primary care and Cleared along with our lifestyle-oriented brands will synergistically help us empower patients to live healthier lives by giving them access to affordable and comprehensive personalized health care.

In January of this year, Cleared announced the first acquisition in the company's history, when we closed on the acquisition of Cleared Technologies, a leading allergy, asthma and immunology telehealth clinic. Not only does this business represent a tremendous jumping off point into a very large and pervasive market as 1 in 3 American adults suffer from allergies or asthma. It is also highly synergistic with the existing LifeMD platform. In addition to the tremendous opportunity to scale Cleared's direct-to-patient offering by leveraging LifeMD's proven capabilities, following the acquisition of Cleared, we've begun to expand LifeMD's business model even further through direct partnerships with pharmaceutical companies. Under these initial agreements, we will use our tremendous health care advertising and patient retention capabilities to partner directly with pharmaceutical companies and manage these activities in a highly efficient, effective and compliant manner. We believe this is an important stepping stone in the continued evolution of our business, exploiting the strength of our core competencies.

We followed up the announcement of the Cleared acquisition with a nationwide launch of LifeMD's virtual primary care platform, following a successful beta launch. Our primary care platform anchored by our comprehensive 50-state affiliated medical group and seamless proprietary technology platform aims to disrupt the market with a convenient, patient-first and frictionless experience in primary care at a highly affordable price point, leading to better outcomes for patients. As we demoed at our recent Investor Day, our platform not only features a seamless one-stop shop technology platform, but also integrates with leading nationwide partners, including Quest Diagnostics, Axle Health and Prescryptive to provide our members with best-in-class lab work, diagnostics, in-home services and prescription drug discounts.

As we begin to scale this business, we see not only tremendous opportunity to cross-sell this offering to the more than 500,000 patients LifeMD's affiliated medical group has treated to date and the 1,000-plus new patients onboarded each day, but also to the millions of Americans who are either uninsured, underinsured, have high deductible health plans or who simply lack access to quality medical care. The LifeMD platform provides comprehensive one-on-one relationships with high-quality doctors in primary care medicine and in an ever-growing range of specialties. We provide direct contact with doctors, when and where patients need it, quick responses to their questions and access to their medical histories, all at pricing that is affordable and transparent.

With that, I will now turn the call over to our CFO, Marc Benathen, who will provide a summary of our financial results. Marc?

Thank you, Justin, and good afternoon, everyone.

As Justin mentioned, we continue to execute and deliver upon strong top line growth and continuously improving operational performance. This quarter marks 12 consecutive quarters of sequential revenue growth and the achievement of record gross margin percentages in 2021. Our team remains laser-focused on not only growing our top line through patient acquisition and retention, but also achieving our stated goal of adjusted EBITDA profitability by the fourth quarter of 2022. We are not only on track to achieve this goal, but I've also successfully capitalized the business to achieve this goal without the need for additional capital. In addition to our strong current liquidity position, finishing the year 2021 with over $41 million of cash and no debt, we have also outlined the additional liquidity we expect to realize later this year from the sale of our noncore subsidiary WorkSimpli. We will provide a further update on the status of this process on our next quarterly earnings call.

Now turning to results for the fourth quarter of 2021. Revenue in the fourth quarter totaled a record $27.4 million, up 113% as compared to the same quarter a year ago. 93% of the total revenues in the fourth quarter were generated by recurring subscriptions compared to 82% in the same year-ago period. Telehealth net revenues grew by 100% to $20.6 million, while WorkSimpli net revenues grew by 164% to $6.8 million. Gross profit totaled $21.8 million, an increase of 144% from the same year ago period, while gross profit as a percentage of revenue was 80% as compared to 69% in the same year-ago period.

Operating expenses for the fourth quarter totaled $35.5 million, a decrease of $5.8 million versus the year-ago period. This decrease was predominantly driven by an $11.7 million decrease in general and administrative expense related to a decline in noncash stock-based compensation expense of $16 million versus the year-ago period.

Our GAAP net loss attributable to common stockholders for the fourth quarter totaled $19 million or a loss of $0.62 per share. This compares to a net loss attributable to common stockholders of $32.3 million or a loss of $2.56 per share in the fourth quarter of 2020. Adjusted EPS is a non-GAAP measure that excludes $4.1 million in noncash stock-based compensation expense, $543,000 in financing transactions expense, $348,000 in depreciation and amortization expense, $4.2 million in noncash loss on debt extinguishment, $871,000 in preferred stock dividends and $8,000 in noncash income tax provision. This figure totaled a loss of $0.29 per share for the fourth quarter as compared to a loss of $0.94 per share in the same year-ago period. Adjusted EPS improved 19% sequentially versus the prior quarter.

Adjusted EBITDA, a non-GAAP financial measure, which factors out noncash stock-based compensation, depreciation and amortization expenses, noncash loss on debt extinguishment, financing transaction expenses, inventory adjustments, preferred stock dividends, interest expenses and income taxes totaled a loss of $8.2 million in the fourth quarter of 2021. This compares to an adjusted EBITDA loss of $9.2 million in the same year-ago quarter. Adjusted EBITDA improved 9% sequentially versus the prior quarter.

Now turning to the results for the full year 2021. Revenue in 2021 totaled a record $92.9 million, up 149% as compared to the same year-ago period. Telehealth net revenues grew by 123% to $68.2 million, while WorkSimpli net revenues grew by 267% to $24.7 million. Gross profit totaled $74.9 million, an increase of 163% from the same year-ago period. Gross profit as a percentage of revenue was 81% as compared to 76% in the same year-ago period.

Operating expenses for the full year totaled $129.2 million, an increase of $42.9 million versus the year-ago period. This increase was primarily driven by a $43.5 million increase in selling and marketing expense related to the continued aggressive scaling of our Telehealth and WorkSimpli businesses. Despite the growth in spend, selling and marketing spend as a percentage of net revenues decreased to 89% in 2021 as compared to 105% in the same year-ago period, reflecting significant leveraging of these expenses achieved in the back half of 2021.

Our GAAP net loss attributable to common stockholders for the full year totaled $61.8 million or a loss of $2.29 per share. This compares to a net loss attributable to common stockholders of $63.4 million or a loss of $4.44 per share in 2020. Adjusted EPS is a non-GAAP measure that excludes $12.1 million in noncash stock-based compensation expense, $1.8 million in financing transactions expense, $869,000 in depreciation and amortization, $4 million in noncash loss on debt extinguishment, $2.1 million in amortization of debt discount, $871,000 in preferred stock dividends and $8,000 in noncash income tax provision. This figure totaled a loss of $1.48 per share for the full year as compared to a loss of $1.74 per share in the same year-ago period.

Adjusted EBITDA, a non-GAAP financial measure, which factors out noncash stock-based compensation, depreciation and amortization expenses, noncash loss on debt extinguishment, financing transaction expenses, litigation costs, inventory adjustments, preferred stock dividends, interest expenses and noncash income tax provision, totaled a loss of $38.3 million in 2021. This compares to an adjusted EBITDA loss of $15 million in 2020.

Now turning to our balance sheet. Cash flow of $41 million as of December 31, 2021, following the successful completion of the company's October 2021 preferred and common stock offering. In addition, during the fourth quarter of 2021, we successfully reduced our operating cash flow burn to under $6 million, representing a 21% sequential improvement versus the prior quarter. We believe our balance sheet is sufficient to support our strategic plans and growth as we continue to scale and invest in the rapid expansion of our business with strong unit economics without the need for additional capital to be raised.

This wraps up our financial results. I'd now like to turn the call back over to Justin.

Thanks, Marc.

We are very excited about the opportunities for us. We believe we are revolutionizing health care and that our platforms will fundamentally shift to help patients think about and access health care in the U.S. We look forward to continuing to execute upon our commitment to be a leader in telehealth, while working toward delivering our fundamental performance goals, including adjusted EBITDA profitability by the fourth quarter of 2022, our 2022 revenue guidance of between 142 and $148 million and our long-term financial goal of achieving $250 million to $300 million in revenue by 2025, with adjusted EBITDA margins at or above 25%.

In closing, I would like to thank our entire team for continuing to deliver record performance at LifeMD as well as our providers and their patients and our shareholders for their continued support as we change the face of health care.

With that, I would like to open the call for Q&A.

(Operator Instructions) And our first question comes from the line of David Larsen with BTIG.

Congratulations on the good quarter. Can you talk a little bit about the beta launch of the virtual primary care solution? How is that addressing and any sense of the demand that you're seeing on the uptake in subscriber?

Sure, David, this is Justin. I can comment on that. We really just sell the full launch of the VPC platform in the last couple of weeks. We're really happy with the progress that we made on the technology. We've continued to onboard more and more patients. The numbers still are very small. One thing that we were waiting on was LegitScript was a final approval from LegitScript to start really committing ad dollars to the platform. So that's something that we're going to be starting in the next week or 2. And we've also been putting in place the right technology to also start moving patients over the VPC platform, which is kind of the cross-sell that we've talked a lot about in the past from our other brands and the 3,000 or 4,000 patients we talk to every single day. And that's also progressing really well also. So we don't have any specific numbers right now at the site, but we feel really good about what we're going to see in the next couple of weeks. And I think, certainly, throughout this quarter, we expect to see some meaningful traction from the VPC platform that we can talk about next quarter.

Okay. So it's my understanding with the pool of patients that Rex sees, I mean, you've treated over 500,000 patients so far. Is it pretty easy to convert or, I guess, upsell or cross-sell the virtual primary care solution to your Rex or Nava customers or the doctors talking to them? Or if the call center rep is talking to them, like is there a way for them to easily sign up for that solution? Can they sort of automatically or easily see whether or not that member has a primary care provider in place already? Just any thoughts on sort of the operational aspect of an upsell or on in-sell?

The answer is yes. I prefer not to get too much into strategy for competitive reasons. But absolutely, we speak to thousands of our patients every day. Mostly we have over 1,000 new patients join the LifeMD family through one of our brands. And like our reps speak with those patients can see whether or not that person has a primary care provider, they can talk to them about it. And so we think -- look, I don't know if easy the right word, but we're really confident that even without paid media and online and offline advertising techniques, which we're really good at, we're very confident that as a result of our -- we're very confident that we're going to be able to cross-sell, bring on a meaningful number of patients every single day from our existing brands onto the VPC platform. I wouldn't -- don't like to use the word easy, but I'll just -- I think I would say that we're extremely confident that, that will be a successful initiative.

Okay. And then with the WorkSimpli asset, fantastic year-over-year revenue growth, but it seems like on a sequential basis, the revenue growth has not been as high as it had been, say, in the year-ago period or previous quarters. And I seem to recall there was something that there was an operational thing that WorkSimpli was working through last quarter or 2 quarters ago. Any thoughts on that, the sequential revenue growth rate of WorkSimpli?

Yes, it's Marc. So yes, there was a free trial offer where they were working on extending the free trial from 14 days to 30 days. That was last quarter. We since terminated that since it's really been fair fruit. But the biggest reason for why there's still sequential revenue growth, but albeit at a slower rate than what it had been in the past was we are very laser-focused on continuing to drive profitability in that business ahead of executing a sales transaction this year, like in the second half of the year with that particular business. That's been the advice that we've received as we're getting closer to hiring an adviser.

We expect them to continue to have sequential growth going forward, but albeit it will be at least in the short term, at a slower rate. They recently added a second product, a digital resume product with small acquisition that they did. We expect that to start to jump start a lot of their sequential growth in the second quarter of this year and to carry forward pretty quickly. But we are -- at the same time, we are laser-focused on making sure that, that business, particularly ahead of the sale, maintains strong profitability numbers as well.

Okay. Great. And then can you talk a little bit about the sales and marketing costs and customer acquisition costs? I'm hearing different things from different entities in the market. In some cases, I'm hearing with sales and marketing costs are increasing significantly, but it seems like you have it under pretty good control. Just what are you seeing in like, let's say, 4Q December of 2021 through January and February, and now we're heading into the spring, what kind of trends are you seeing in advertising costs?

Yes. So in general, from a market rate standpoint, the advertising market has been challenging. With that being said, we think this is a time where it really shows how LifeMD is differentiated in this area. If we were just tracking to what the trends were, you would see that our tax were up by significant double digits. They're not to have been flat on a sequential basis. And as we mentioned in the call, year-on-year, they were down 23% versus the prior year. And a lot of that improvement really started in the back half of the second quarter this year through the back half of the year. So the market remains challenging, but we continue to be able to produce record results in the acquisitions of new patients and be able to do that with relatively consistent tax because we're able to get smarter and more refined than a lot of our strategies. Obviously, I'm not going to go into those details for competitive reasons on the call, but we think that the tough market has really shown that we're able to succeed and excel despite those types of market headwinds.

Okay. And then just the last one before I hop back in the queue. Any thoughts on how Nava and Cleared are performing relative to your own internal expectations? Any thoughts or color there? And it's also my understanding that there's a sort of a very large over-the-counter solution set that Nava has and a large market opportunity there. Just any color or thoughts on the traction you're gaining?

Cleared, it is very early to tell. We closed the acquisition on January 18. But so far, it is tracking in line with the expectations that we had for that business. And we think it's actually going to be a pretty significant opportunity, bringing not only significant additional growth on a direct-to-patient basis, but also directly partnering with some pharmaceutical companies in that space of which we already have a couple of existing partnerships. On the Nava side, yes, I would say that, that particular business is in line with our internal expectations. We expect most of the growth in that business to be in the second quarter through the end of the year as we start to complement the Rx business with the OTC, something that's happening this month. But in general, they're both performing in line with our expectations for the business.

Okay. Congrats on your progress here and for your 4Q '22 EBITDA breakeven objective. It sounds like you're on track. I'll hop back in the queue.

(Operator Instructions) Our next question comes from the line of Marc Wiesenberger with B. Riley Securities.

I think you noted in the release and in your prepared remarks, 93% of revenue was generated by subscription. I'm wondering if you could parse out that subscription number with regards to WorkSimpli versus the Telehealth business?

Yes. So 90% of the revenue of the Telehealth business is recurring subscription and 100% with WorkSimpli's within subscription.

Great. And then could you talk about kind of the percentage of encounters that are asynchronous and how that's evolved over the last few quarters? And as VPC grows, how that shift in the mix could impact margins, if at all?

Yes, I can take that one, Marc, it's Justin. So I would say that currently, these numbers are estimates. But I would say that if you look at our, call them, condition specific and dermatology businesses, which are Rex, Shapiro and Nava, probably roughly 80% of those consults are asynchronous. We have the ability to do asynchronous consults through the virtual primary care platform. But initially, we decided that everything is going to be synchronous. So yes, it's going to -- of course, the synchronous appointment takes considerably more time than an asynchronous consultation does. However, we feel really good about the projected margins of that business. It's a different type of business.

We're -- it's a true telehealth service that's recurring. And so someone is paying us $15 a month, for instance, which we expect to be probably -- that's probably the business model where we have the most number of patients initially. And so that $15 a month, that $15 a month platform fee is 100% margin. We expect to put a lot of patients on that platform. And then it comes down to usage, right, and how often each patient uses the platform, they're paying us, of course, for every consult with that platform.

It's an a la carte consult offering. So if you think about it, even paying above market like we do for doctors and making sure that we're only delivering incredible health care, we still see very, very attractive kind of net margins on the business. But it is a little bit -- it is different, but where you kind of -- what makes up for the, call it, lower margin consult is that kind of recurring subscription fee, which is 100% margin. Does that answer your question?

Oh. We apologize. It seems that he had disconnected. If he comes back, he may have a chance to go back in. We do have our next question from the line of David Larsen with BTIG, again.

Just one more follow-up. Amazon announced that they're launching a nationwide virtual primary care platform. Have you seen them in the market at all? Or just what are your general thoughts on the impact that Amazon may or may not have on your launch and your progress?

David, we're very kind of focused right now on this cash pay market, which is a product that really caters the 60% of Americans that are not insured or underinsured or on a high-deductible health plan. From what I've seen, a lot of the bigger companies, Amazon is in the space, Google's in the space, Apple's certainly going to be in the space and so will a lot of other people. A lot of those big tech companies have really focused on the lower-hanging -- the lowest hanging fruit, which would be management of chronic conditions like diabetes, hypertension, things like that and also in relationships with the big payers of the world or in the U.S.

So I have not -- like I don't know anybody I've never met anybody. I've never seen an ad really, I don't think, for Amazon's primary care platform. And I just -- look, this market is so big that -- and we know that we've always known, and we know that a lot of big companies that are really well funded are going to be playing in the space. And quite frankly, we've built our business in some of the most competitive markets in the U.S. and even in health care. So it's not something that we worry about it, right. What I'm focused on is finding the highest value revenue streams within that virtual primary care world, where we can just deliver incredible health care, drive amazing unit economics.

We do best on the acquisition side. And we're going to win, right. We don't need to capture much of this market to build a very big business. So I know that -- I've said this to you, I think, off-line, like I think that you're going to start seeing virtual primary care everywhere. And LifeMD and our acquisition team, like we really thrive in these competitive markets, and we're very creative, and we know how to like create these offerings that people need and go out there and get patients and then retain them. And so we're just -- we're not -- it's way too early in this game for us to worry about competition.

Okay. Great. And have you been approached by any health plans that want to basically use you as a virtual primary care group? And any thoughts on whether or not that's something you'd be willing to do at some point in the future? And just any thoughts around the size of what those plans may have been would be helpful? How many members?

We've been approached by one kind of very small health plan that has, I don't know, very small, right. I think they have 10,000 or 20,000 lives. We've also been approached by some large employers that expressed some interest in the platform. We've kind of just said, hey, we need to -- we want to follow up with you in another quarter or 2 once we onboard more patients onto the platform. We've also, David, like what's even more interesting than that is we've been approached by a number of health care product companies, right, diagnostic companies, pharma companies that have products where they kind of need a partner, right. They need a telemedicine partner that they can drive patients to from their website and from their own marketing activities.

And these are very big, like these initiatives could drive tens of thousands of patients or more to LifeMD, we would actually realize service income from these initiatives. Some of them, there could be a co-promote structure. And then also, these things could be all these patients that are now using the LifeMD app to access this particular health care products are all great candidates for our virtual primary care offering. So super early stage discussions with this one small payer. It's not an area that we focused on. But there's certainly a very big B2B opportunity here. I want to be conservative with some statements that I make, but it's something that I think you're going to see us have some traction with this calendar year.

Okay. I mean, if we assume let's call it, $25 per member per month with 20,000 patients, that could be anywhere from $5 million to $10 million a year in revenue. So it might be a small plan, but it could be a material revenue contributor, right?

That's correct. The numbers become material quickly. So any of these things, right, a large employer, a small health plan, like a diagnostic company, for instance, that's running 5,000 or 10,000 tests a year. Any of these things are very material.

And our next question comes from the line of Marc Wiesenberger with B. Riley Securities, again.

Sorry for the technical difficulty and dropping off the call there. How do you think about your customer acquisition channels evolving over time? It looks like some competitors are maybe increasingly leveraging influencers or celebrities and wondering where you could look to increase the top of the funnel relative to where you are today?

Yes, this is Marc. Justin, do you want to take that?

Yes, Marc, my quick comment on that would be, we're constantly building new partnerships on the media side. And I think there's a lot of opportunity to continue to grow that. We actually just launched a trial like we launched a new test with one of the largest consumer health care websites in the U.S. in the last couple of weeks. But there are a lot of channels out there. A lot of those are online channels that we haven't really tapped into yet that we're constantly kind of testing out, seeing what the CPAs look like. And there are a lot of off-line opportunities as well that we haven't tested yet that we're seeing strong traction on internally. So these are very competitive markets, but we still see a lot of opportunity to continue to expand this effort to the top of the pharma.

Great. And then just the final one for me. As you look at the components of your LTV calculation, wondering which one of the inputs do you feel that you can really turn the dials on the most? And throughout the year, what kind of gains do you think are achievable?

This is Marc. I would say 2 things. One, AOV we've already seen some decent traction with that relative to new subscriber sign-ups, where, particularly in our largest brand, Rex, the fourth quarter, we were able to increase what had been about the $95 to $100 AOV on new subscriptions, up to about $125 to $130 through some additional cross-sells and upsells. That's one. And then number 2, as we continue to broaden our platform, primary care rolls out, and I think this is probably the biggest one, it would be retention. As we become a bigger, broader business, we believe retention is going to continue to move up and continue to have a larger long tail for those customers to stay with us for 2, 3, 4 years plus.

And we have reached the end of the Question-and-Answer Session. I will now turn the call back over to Justin Schreiber for closing remarks.

I just like to say thank you to everybody for joining another earnings call. We're extremely pleased with the performance from the past calendar year and looking forward to another terrific year in 2022. So I appreciate everybody's support, and we'll talk to you next quarter. Have a great evening.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.