Q1 2024 LifeMD Inc Earnings Call

Participants

Justin Schreiber; Chairman of the Board, Chief Executive Officer; LifeMD Inc

Marc Benathen; Chief Financial Officer; LifeMD Inc

David Larsen; Analyst; BTIG

Sarah James; Analyst; Cantor Fitzgerald

William Wood; Analyst; B. Riley Securities

Alex Fuhrman; Analyst; Craig-Hallum Capital Group LLC

Presentation

Operator

Good afternoon. Thank you for joining us today to discuss LifeMD results first quarter ended March 31st, 2024. Joining the call today are Justin Schreiber, Chairman and Chief Executive Officer; and Marc Benathen, Chief Financial Officer. Following management's prepared remarks, we will open the call for a question and answer session.
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 actual results to differ materially from those projected. These risks and uncertainties are described and the Company's 10 K and 10 Q filings and within other filings Life MD 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, May eighth, 2024. The Company assumes no obligation to update or revise any forward-looking statements after today's call, except as required by law.
Also, please note that management will be discussing and non-GAAP financial measures. The company believes are important in evaluating life MT's performance details on the relationship between these non-GAAP measures. 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 we'll be available for replay in the Investor Relations section of the company's website.
Now I'd like to turn the call over to the life MDBs CEO, Justin Schreiber. Please go ahead.

Justin Schreiber

Thank you and good afternoon, everyone. After the market closed, we issued a press release announcing our first quarter financial results and posted an updated corporate presentation on our website at ir dot life, indeed, dot com.
Last year's robust business momentum continued into 2024 producing strong first quarter performance across both our weight management and Rex businesses. During the quarter, we added 20,000 total patient subscribers ending the quarter with over 235,000 as of the end of the first quarter, we had over 42,000 weight management patient subscribers with performance in this area continuing to be well ahead of our expectations. As of today, I am pleased to report we have over 50,000 weight management subscribers. Importantly, more than 80% of patients who start GLP-1 treatment remain a patient after 90 days. And we are very pleased with these and subsequent 1st year retention figures, our core telehealth business continues to outperform, with revenue growing 53% versus the prior year. Continued outperformance in our GLP-1 business is the key driver behind the increase to 2024 revenue guidance we're announcing today. Our noncore subsidiary work simply started the year off with softer than expected results in January and February. Before returning to growth in March and ending the quarter with a sequential increase of 8,000 subscribers. For the quarter, Work simply revenue grew 3% versus the prior year, but this business remains on track to achieve full year revenue and EBITDA goals consistent with our guidance.
As we look ahead to the rest of 2024, we're focused on several key initiatives that we believe will catalyze significant growth in life of these market share and our top and bottom lines in 2024 and beyond.
I'll speak more about each of these initiatives today, which include one, continued growth of our GLP-1 weight management program to new launches on direct MD. three, the launch of private and government insurance options and for implementation of AI initiatives across our telehealth business. First, our weight management business continues to enjoy tremendous growth with demand for our services and products still consistently exceeding the supply of available appointments. As I mentioned, we added a record 20,000 new patients in the first quarter with no signs of this trend slowing down. Unit economics remain tremendous with our day one return on ad spend continuing to exceed one times, and our expected month 12 return on ad spend expected to be at least 2.5 times during the quarter. We also accelerated our rate of growth in new patient sign-ups from less than 200 per day to 400 plus new patients per day today. The single greatest limiting factor to our growth has been creating additional appointment capacity and our ability to scale our ratio of patients to providers. To accomplish this, we continue to invest in growing our clinical staff, but also. And equally as important, we continue to invest in developing our platform's automation and technical capabilities to create more efficiencies for our affiliated providers and patient support teams while enhancing the overall experience patients have on our platform. Additionally, we've recently begun to see significant upticks in the approval rates for GLP one payer coverage from the prior authorizations we file currently, we see approval rates of 40% to 50% on Wegovy and that bound prior authorizations with co-pays averaging between $35 and $70. These figures are a big improvement from our approval rates earlier this year, and they have contributed to our more recent refund rate declines from nearly 33% to approximately 15% to 20% today. As announced in December, we signed a collaboration agreement with Medifast, one of the largest Coach guided diet and nutrition companies in the U.S., which included a $10 million equity investment and $10 million in collaboration fees for life and the Medifast Opta via coaches are now able to work with Life & D affiliated providers to provide patients with an integrated solution and holistic approach to weight management. Medifast will also be investing at least $25 million in consumer marketing to support growth of this program for the balance of 2024 which we expect to have a meaningful increase in the volumes of new patients acquired from this program. We are pleased with the collaboration to date and look forward to providing more updates on this integrated offering as it is fully rolled out in the coming months.
Moving to our second key initiative. We remain as excited as ever about our Rex & D brand, which has consistently produced double-digit growth and strong profitability without the benefit of any new products this quarter, I am pleased to announce we expect to launch two new offerings into this brand. First we plan to launch our hormone replacement therapy offering led by testosterone therapy. This offering not only presents a tremendous cross-sell opportunity for the existing Rex patient base, but also addresses a tremendous and underserved telemedicine market for Life MD to tap into within the men's health market that is highly synergistic to our existing Rex and GLP-1 weight management businesses. The current size of this market is estimated at $2 billion annually. And unlike many other categories like MDS successfully entered, we expect to be an early mover in this market from a telehealth standpoint, with a comprehensive and differentiated offering designed in conjunction with leading clinical experts in the field. We expect this offering to be a substantial contributor to the Company in the years to come. Additionally later this month, we will we will also be launching our weight management program under Rex. Md has an asynchronous offering similar to HRT. We expect this offering not only to have substantial cross-sell potential, but also to provide a valuable new avenue from which to market our industry-leading weight management program as a bundled offering with clinical care, the fact is that in just four short years, Rex India has grown to become one of the leading men's health brands in the US and has been trusted by over 500,000 men to date Reckson, the patients typically have ample disposable income are typically over the age of 40 and they know and trust racks for the outstanding service and patient experience we provide. Our data suggests there is a substantial need for both HRT. and weight management services among these patients. And we believe both of these new offerings have the ability to significantly accelerate the Reckson D business and in turn to life and the growth rate in the years to come. And under our third key 2024 initiative, we continue to make good progress preparing for the launch of our insurance program offerings. We are on track to launch our initial insurance visits on a limited state basis in the second quarter with the first state expected by late May or early June for our virtual primary care offerings, including weight management, we have several payer contracts in place. We hired our initial Head of Revenue Cycle Management. And we are in the latter stages of finalizing our systems deployment for government provider, enrollment benefits verification and revenue cycle management. While we do not expect this launch to be material to 2024 results. We do believe insurance capabilities will be extremely valuable and differentiating in 2025 and beyond, while also driving further retention improvement. Additionally, we are extremely excited about launching government insurance capabilities by late 2024 or early 2025. The fact is this population is an entirely new audience for life and DI. Today, there are over 65 million people enrolled in Medicare across the US with that number growing each year. In addition, with the recent FDA approval of Wegovy for cardiac health estimates show that approximately 4 million people could receive coverage through Medicare for this drug. Because of this, we believe insurance and in particular, government insurance plans represent a huge untapped market for life and DI, which is why we've continued to build our compliance capabilities, specifically geared towards supporting the needs of Medicare beneficiaries. By doing so. We also believe we are further differentiating ourselves into a telemedicine market leader that's capable of servicing the full range of patient populations and a significant number of health care needs. I'm pleased to announce that we have made meaningful progress in the implementation of AI across the organization. Since launching pilot AI features in early March, our patient care experts have achieved 60% greater response throughput for patient inquiries were over 48,000 responses have been sent to patients with support from our trained AI models. We've now also used AI classifiers to triage over 168,000 patient messages across medical administration, administrative, shipping and technical categories for streamlined and improved patient care. We are just scratching the surface in this area, and I'm excited to announce further improvements on our ability to scale, improve cost efficiency and deliver better cares in the quarters to come.
In short, we are extremely excited about the potential for continued strong performance in 2024 while building new foundations for additional growth and differentiation in the years to come.
And with that, I'll turn the call over to our CFO Marc Benathen, then who will provide a summary of our financial results. Marc?

Marc Benathen

Thank you, Justin, and good afternoon. Everyone. Life MD had solid first quarter financial performance with total revenue growing to $44.1 million and cash adjusted EBITDA of $4.8 million, a 108% increase for this measure versus the prior year comparable period. Q1 revenue was up 33% versus the year ago period, with telehealth revenues increasing 53% and work simply revenues increasing 3%. Adjusted EBITDA, not including the increase in deferred revenue related to prepaid subscriptions, primarily from weight management growth was approximately $500,000. Works centrally, which had soft January and February performance rebounded sharply in March and ended the quarter with a sequential increase in subscribers of 8,000 versus the prior quarter. Our GLP-1 weight management program continued to over-perform, driving growth in telehealth and sizable benefits in cash flow from operations, which exceeded $5 million for the quarter and positive net cash flow as LifeMD's cash balance grew by $2 million during the quarter, purely from strength of our D to C telehealth business. Our subscriber growth remains strong with the number of active subscribers increasing 31% year over year to approximately 235,000, while works. Simply active subscribers contracted 4% to over 166,000. As I mentioned, work simply subscribers did return to growth late in the quarter and ended the first quarter with an increase of 8,000 subscribers compared to the fourth quarter of 2023. Importantly, with this return to growth, we expect work simply to meet full year EBITDA expectations in the range of $17 million to $18 million and full year revenue expectations of $65 million. Consolidated gross margin for the first quarter was a record 89.6%, up 230 basis points versus the prior year period. Gross profit for the quarter totaled $39.5 million, an increase of 37% from the year ago period. Our GAAP net loss attributable to common stockholders for the first quarter totaled $7.5 million or a loss of $0.19 per share. This compares to a GAAP net loss attributable to common stockholders of $4.8 million or a loss of $0.15 per share in the first quarter of 2023. Adjusted EPS is a non-GAAP financial measure that excludes interest taxes, non-cash expenses, dividends, thoughts and insurance acceptance, readiness, litigation expense, non-controlling interests, M&A financing, transaction costs and foreign currency translation, reflecting those adjustments.
Adjusted diluted EPS for the first quarter was $0.01 compared with $0.06 in the year ago period. Adjusted EBITDA, which is a non-GAAP financial measure that excludes the same items I noted for adjusted EPS, total $0.5 million in the first quarter of 2024. This compares with adjusted EBITDA of $2 million in the year ago quarter. Importantly, though, when adjusting for the sizable increase in deferred revenue related to weight management, cash adjusted EBITDA totaled $4.8 million, up from $2.3 million in the year ago period, representing an increase of 108%. LifeMD generated $5.2 million of positive cash flow from operations during the first quarter of 2024 versus negative cash flow from operations of $2.6 million in the year ago period. This is the fourth consecutive quarter of positive cash flow from operations and the third quarter of positive net cash flow. When factoring in cash flow from investing and financing activities. Cash balances totaled $35.1 million as of March 31st, 2024, an increase of $2 million versus the prior quarter, driven entirely by continued strength in cash flow generation from our telehealth operations.
As Justin mentioned, we are raising our 2024 guidance for total revenue to be at least $205 million, up from at least $200 million previously, while reaffirming our adjusted EBITDA guidance to be between $18 million and $22 million.
This wraps up our financial results. I'd now like to turn the call back over to Justin.

Justin Schreiber

Thanks, Marc. Because I've always said on these calls, I remain very optimistic and excited about the future of life and deep. Our core businesses are growing, have dominant positions in very large markets and have a clear and long-term growth trajectory. For the remainder of this year, we will focus on profitable growth of our telehealth business. This means relentlessly focusing on creating an amazing patient experience, investing in our differentiated telehealth services and products and continuing to enhance and optimize our technology platform. Continued focus in these areas drive better patient outcomes, better retention and better returns for shareholders. With that, I'd like to thank everyone for joining us today, and we'll now open the call to Q&A. Operator?

Question and Answer Session

Operator

(Operator Instructions) David Larsen, BTIG.

David Larsen

Hi, and congratulations on the quarter. And can you maybe talk about your expectations for profitability of the health care business? Like are you EBITDA breakeven right now or not? What would you expect healthcare EBITDA to be in, say, 4Q of 24, for example? And then how should we be thinking about an EBITDA margin for health care as we head into 2025? Thank you.

Marc Benathen

Yes, Marc, David, so the type of EBITDA slightly negative today, it is cash flow positive. The only reason it's negative is that deferred revenue from weight management on the EBITDA loss from Wes, Matt from telehealth this quarter was slightly below $1 million on, so not not very significant. And actually it's moving in the right direction. And again, with the sizable increase in deferred revenue of $4.3 million. If you add that to the about $1 million loss, telehealth business is actually a $3 million positive on a cash flow basis. So really moving in the right direction. We still expect the business from a P&L standpoint to turn profitable June, July of this year, which would mean the first quarter that you would see standalone profitability for telehealth will be the third quarter and we expect a pretty steep slope off from that of the fourth quarter. We do expect between $3 million to $5 million of EBITDA from the telehealth business by itself. And then next year, we do expect EBITDA to exceed $20 million on a full year basis.

David Larsen

Okay, fantastic. So $20 million of healthcare EBITDA for fiscal 25, I guess, is the guide. And then can you maybe just talk about what the drivers of that incremental profitability are? I mean is it is it I mean, nothing simple, but it is it as simple as gaining leverage with. Here's I think it's 30 providers. You have on your platform as you add more weight management members, you basically scale on and they simply become more profitable. Is that is it that simple or are you sort of changing price on the premium?

Marc Benathen

No, no, no. I mean, we are not taking price increases. That's not our business. It's a few big factor. So firstly, we have about 70 providers today but where a lot of the profitability scale comes from is a few factors on one, continuing to leverage our marketing spend as a percent of sales right now, we're in a very heavy growth, early phase of weight management. You're not going to get much leverage at this point. But as we put on, we are over 50,000 patients at this point as we put on more and more a greater percentage of that revenue comes from rebilling of existing patients then comes from new patients. New patients have an acquisition marketing costs associated with it, which we are slightly in the red they won on a cash basis, obviously a GAAP basis. You'll have actually more underwriters. You spread most of that out over six months, rebill patients, almost all of that flows to the bottom line. You've essentially got your COGS and merchant fees. So, you know, something like 70% to 80% of that flows to the bottom line. So that that's the biggest lever, as you know, obviously, leveraging marketing expense, retention of existing patients, which gets bigger and bigger as the base gets bigger in weight management. And then the other piece, as you mentioned, is just continuing to leverage our G&A, which will move up as we get bigger, but it doesn't move up in lockstep with the rate of growth in revenue and leverage comes from that as well.

David Larsen

And just one more before I hop back in the queue. How many weight management members did you have at March 31st? And then how many do you have right now?

Marc Benathen

Yeah, we have 42,000 at March 31st approximately, and we have slightly over 50,000 now.

Operator

Sarah James, Cantor.

Sarah James

Thanks to its impressive growth to 70 physicians are you guys still looking at adding about four to five a month, and I think previously we talked about there being capacity for about 1,000 patients per physician. So does that mean that you guys are have the capacity to go up to about 70,000 weight loss patients with your current staffing levels?

Justin Schreiber

Hi, Sarah, this is Justin. So we're continually adding providers to the platform four to five a month? Sounds like a fairly accurate number. It might be slightly more than that. It's a mix. It's a mix of we are adding some some part-time providers as well. And as far as scale, I think I think I think we can hit. I think we think the number is greater than a 1,000 patients per provider. We probably think it's close to double that, especially of our tech is our tech is in place and kind of doing what we think it should be doing so but generally, the goal in our in our guide for this year, as we've talked about before, was based on based on that 300,000 new patient per day range we do think we're going to end up coming in ahead of that, which is one of the reasons why we've increased the guidance a little bit today on and if we were to if we were to scale to 1,000 patients a day, we would we would have to we would have to probably double what we'd probably have to increase the physician group by at least at least 50%.

Sarah James

And just and also it's great timing with you guys getting set up in late 24, early 25 to launch the government insurance, coinciding with the FDA approval of Wegovy for cardiac. How do you plan to tap into that market? And do you guys need to modify your marketing channels and strategy and how are you thinking about leveraging your installed base with respect to tap into seniors?

Justin Schreiber

Well, we think there's a big opportunity there in the fee-for-service world with Medicare beneficiaries. I think they were initially our plan as to tackle this the same way in a very similar way to our current offerings, but allow people to use their Medicare or used their private insurance and then and then pay a concierge fee alongside of that for non-covered services.

Operator

William Wood, B. Riley Securities.

William Wood

Thank you and congratulation on the very nice quarter and thanks for taking my questions.
So I knew you recently passed the one year mark on when you launched your weight management business on given that I've seen figures of upwards of like 60% of people that use GLP-1 drop off within actually the first 12 months, do you have any retention data possibly even for the six months that the people that the first patients who started around this time last year and then how many have stayed on for six months versus maybe even 12 months.

Marc Benathen

And yes, from a retention standpoint, as Mark <unk> patients that go on therapy. So as we've talked about before, we have that initial drop was due to access issues, people not getting approved for coverage on the brand and not wanting to go on a compound a treatment and not being able to afford the cash-pay, which obviously many people can't afford on when we started the business in April of last year.
On the Wealth Management side on for the first several months of about 33% of the total or were dropped off during that period were down to 15% to 20% dropping off. Now prior approval rates have gotten better. Our communication, our diligence and our processing has all gotten better. So that's been one when if you go then to people they get on treatment, which typically, you'll know in most cases within the first 30 days, sometimes it can extend longer to some prior authorizations go longer. The first 90 days that those people are on treatment, we see over 80%. It's actually about 80% or 83% remain on treatment after 90 days. So really strong initial retention rates on the longest cohorts that we have today that are meaningful. I mean, the first couple of months, this number was statistically significant, our about 10, 11 months old. At this point, what we're seeing is we're seeing retention approaching about 50% of the total. But if you consider the fact that in those cohorts. So say it started with 100 people, 30 of them dropped off for access issues right away. The retention, long term of those people that our going on treatment still looks like it continues to be very good.

William Wood

Got it. Very helpful. Appreciate the color there on you also, I mean, you've noted just recently and you know that to get up to 1,000 patients a day, you need to increase by our providers by 50%. You know, are you trying to bring in sort of the AI. and more of the automation or how should we think about, you know, the continued scale up in what it's really going to take off with growing not only the top line, but the bottom line?

Justin Schreiber

Yes, this is Justin. We have that's a good question. I mean, the AI. is something we're really excited about as we talked about during the call and we're seeing a lot of efficiencies now across the organization from rolling some of the some of these things out. And I think that over time, it certainly will make a big impact on the clinical side. But I think near term, those that the A. I and a lot of the efficiencies that come from our technology platform are really kind of helping us to provide incredible care to more patients as we scale the business. They're reducing the costs associated with patient care, customer patient service, the call center, all of that stuff and so it certainly is going to play a role and help us to help us to scale the business without without expanding the overhead as much as we've had as much as we've had due to kind of go from zero to 50,000.

Operator

Alex Fuhrman, Craig-Hallum.

Alex Fuhrman

Hey, guys, thanks very much for taking my question. I wanted to ask just about the upcoming launch of a weight management offering under the Rex Smith brand on. Can you talk a little bit about how you're going to go after that male consumer and just how that compares to your existing weight management business under the Life MD brand, if you could maybe share with us how much of that existing business it's male versus female?

Justin Schreiber

Yes. Hi, Alex. So I would suggest and so the initial focus of the Reckson, the weight management offering will be beyond like our existing database, which is 150 to 200,000. Active subscribers are 0.5 million subscriber, formerly active subscribers. And then we have a lot like millions of prospects in that database as well. So that's that's the initial focus. Those efforts, you know, there's clearly a lot of these people, a lot of these men that are and 40 50 years old is kind of the target demo that have erectile dysfunction. We know at least 50 50% of them have multiple chronic conditions. Obesity is typically are being overweight or obese, typically one of them. So as far as how we're going to target them, it's going to be very similar to the way that we've targeted band for erectile dysfunction and the other treatment offerings on Rex MD. on as far as how it's going to be structured we have of where we plan to use the same technology platform that we use for our ED business, which is which is in a single platform. There's some same capabilities in certain states where it's required, but we plan to use and we use that same that same platform. It will be a bundle. We're planning to launch a bundled offering, which will include, which will be as of basically a therapy, a provider and the entire program similar to what we have on the weight management side, it's know it's going to be priced somewhere around 300 a month is the plan. And look, we just think we think that there's a big opportunity here within this demographic for a weight management offering and we're really excited about really excited about getting this thing launched. We're going to be launching in the next couple of weeks. So it's a very near-term initiative for us.

Alex Fuhrman

Great. That's really helpful, Justin, thanks. And then on on the Medifast partnership, it sounds like they're going to be spending quite a bit of money marketing your your joint offering in the third and the fourth quarter, can you give us a sense of how much of your expected growth in the back half of the year is expected to come from this Rex & D light weight management offering as well as the Medifast partnership.

Justin Schreiber

The vast majority of the growth that we have in our guide for the year really doesn't include Medifast and rec Sunday. So we think both of these things, we think they're both going to be successful. And I think that's it's a lot of upside for the year. We're excited about both of them.

Operator

Ladies and gentlemen, as a reminder, should you have a question, please star one and there are no further questions at this time. I will turn the call over CEO, Justin Schreiber, for closing remarks.

Justin Schreiber

Thanks, everybody, for your questions and for your interest in LifeMD. We look forward to speaking with you once again when we report our second quarter results in August. Have a good evening.

Operator

Ladies and gentlemen, this concludes your conference call for today. You may now disconnect your lines.
Thank you.