LifeMD, Inc. (LFMD) Earnings Call Transcript & Summary

All right. Good morning, everyone. I'm Jailendra Singh, Healthcare Technology and Distribution analyst at Credit Suisse. Thanks, everyone, for joining us for this session. Next up, we have LifeMD for a fireside chat conversation. From the company, we have Justin Schreiber, CEO; and Marc Benathen, CFO. LifeMD is a direct-to-patient telehealth company to provide a smarter, cost-effective, and convenient way of accessing health care. I have some prepared questions, which I plan to cover. But if anyone from the audience has a question, please e-mail them to me at [email protected]. Justin, Marc, thank you so much for doing this, really appreciate it.

Thank you there.

So maybe for those who are -- I know you are a public company, I mean, of course, investors kind of are aware of you guys. But just curious, like, I mean, from -- for those who are still new to the story, maybe let's set the ground, give a little bit overview of the company, who are your target customers, give a sense on the demographics and let's start there.

Sure. I'll take that one, Jailendra. So LifeMD is a direct-to-patient telehealth company, started off really as a performance marketing business in 2015, built an awesome technology platform and have been kind of attracting amazing talent on the acquisition side for the first couple of years, kind of pivoted into the telehealth space in 2019, built a portfolio of telehealth brands that are mostly focused on men's health, lifestyle and dermatological conditions. So the ED, hair loss, dermatology treatments. All the business is entirely cash pay. It's a direct-to-consumer model. We run an ad informing people that we can treat them for a particular condition. We cover the cost of the console. We have a 50 state network of independent physicians that treat our patients. Patient pays for treatment and a prescription medication, oftentimes an over-the-counter product as well, they're routed to a physician that's licensed in their state. If appropriate, medication is prescribed, combined oftentimes with -- oftentimes proprietary and patented over-the-counter products that we offer. Everything is bundled, shipped directly to the patient's home. And then they're on -- essentially, it's a recurring business revenue model. 95% of our revenue now is recurring. Then on top of that, we just launched this week, a primary care offering, which we're offering a kind of dedicated doctor to patients that can handle a lot of their virtual or all of their virtual primary care needs. So we look at that as a really nice bolt-on platform to these various condition-specific offerings that we have that should result in just better and a longer-term relationship with the patient, better outcomes for the patient, and better unit economics for shareholders. We kind of think that that's the best form of intellectual property that a company like ours can have is amazing doctors that aren't just kind of randomly treating patients for urgent or episodic conditions, but following a patient over time, building an amazing relationship. And so that's kind of the long-term vision of the company.

Right. Just a quick follow-up there. You talked about various bands you have, maybe give us some flavor about which other like highest percentage of your revenue right now? And why do you think there's a market in DTC or cash pay market for some of those conditions? Is it more like because these are stigma-ridden conditions, people who don't properly use employer or insurance? Just help us understand like why does even a market exist in DTC for some of those conditions you talked about.

Yes. So our biggest brand is Rex MD, indeed, a lot of it is recost function revenue, similar to kind of our peers in the DSC space. Second would be Shapiro and Nava, which we recently launched. Look, a lot of the medications that we sell are just -- are not reimbursed, take Viagra and Cialis, for instance, like they're not reimbursed, their cash pay everywhere. Same with a lot of the -- for instance, looked at the derm space. I mean, acne treatment and things like that are just -- usually, they're not reimbursed. So currently, we're focused in a lot of these markets where you have very high-margin generic drugs, consumers want the synergistic over-the-counter products as well that they're using alongside of prescription medications. And so what they're -- what they're paying us the cash is affordable. And quite frankly, they'd be spending just as much or more or most times, they just wouldn't be receiving treatment. I mean that's -- even in these lifestyle and dermatological conditions, which that's -- they're very -- they are oftentimes things that are really important and really impact people's quality of lives. The biggest thing that companies like LifeMD have done is increase the access to these products and these medications and the treatment for these conditions because very difficult to get in to see a dermatologist. A lot of men didn't want to go see their primary care physician or the urologists about to treat ED and -- or its just really inconvenient. So they're affordable, and the unit economics are -- make sense and are great, and it's a win-win for everybody.

Okay. I really want to talk about your virtual primary care platform, but before we get there, the other question I want to ask is, do you guys -- your own pharmacies for fulfillment? Or do you work with third parties instead and why so?

Yes. So we work with several third-party pharmacies. We just -- look, what we want to do is build a network of pharmacies across the U.S. that are obviously strategically located and based on where the demand is for medications. The name of the game is just reducing delivery times as much as possible for our patients. We find that's kind of the #1 thing that people care about is how quickly they get their medications from when they order it. And it just didn't make sense for us. We want to focus on what we do great. And I think there's 2 things. We have incredible doctors that deliver great care, and we're really awesome at acquiring patients and managing brands. So it doesn't -- it didn't make sense for us to own the pharmacies. Quite frankly, we can scale them and build these kind of relationships strategically with pharmacies across the U.S. much quicker. And we also think that from a regulatory standpoint, it's probably better to not own the pharmacy.

Why is that? I mean, just kind of dial on the last point there.

Just something that we've looked, I think it's something that we've heard from -- it's something that we've just heard from counsel that it makes sense to have an arm's length relationship with a pharmacy and have some sort of independence there when they're fulfilling prescriptions.

Okay. Let's talk about your virtual primary care platform, new launch. What kind of expectations do you have there in terms of initial traction, growth prospects? Let's spend some time here.

So this quarter kind of MVP launch, just friends and family, moving some of our existing patients from Rex and Shapiro and Nava onto the platform, working out some of the technology kinks. And then we plan to like really launch this January 1st. As far as our expectations for the year, we're very excited about the prospects. But I think that even if we put tens of thousands of patients on this platform, just on the primary care platform over the first year, that would be extremely successful. I think that there's certainly a lot of upside there as well, and it could be much bigger than that. But we'll see. We're just focused on, like, really building the platform, making sure we're offering high quality care. And we have a large patient population already, and we're extremely confident. Even if we moved a couple percent of that population over to a long-term relationship with a great position, it would be very successful and meaningful for next year's revenue.

Okay. One thing I actually want to follow-up, like, when you talked about your other products, I get the point that some of those are like stigma-ridden, some of them are not covered by insurance or employer but in primary care, we are seeing more and more employers and insurance companies rolling out virtual first health, virtual primary care platform, sometimes they are zero-dollar co-pay. How as a DTC platform -- how would you compete with those kind of offering from employers and insurance companies?

So look, from everything that we've seen, I'm extremely confident that the level of care and convenience that we're going to create for patients through our platform is going to be leagues ahead or is leagues ahead of anything that I've seen currently available like through large payers. Most of what I've seen is people kind of being able to log into a platform. They still have to pay, co-pay typically for these virtual visits. And they're getting assigned a random doctor to kind of do a one-off counsel. That's the opposite of what we're doing with our platform of LifeMD. The patient receives a doctor that stays with them for as long as they're a LifeMD member and the level of care from annual virtual physicals to diagnostics, including in-home collection of diagnostics to discounts on prescription medication, either picked up at a pharmacy near them or conveniently delivered through our mail-order pharmacy or other technology that we plan to integrate, like wearables, things like that, enabling your doctor to connect to really follow your physical health. It's -- what we're building is leagues ahead of anything I've seen from any of those larger payers. And I think some people are obviously going to say, "Hey, I never use a doctor, and I'd rather just pay the $20 through my insurance company,” but there's a crisis right now in America with primary care. I mean, it's hard for people to live in New York in major cities and work for big banks to sometimes understand -- I'm certainly not talking about you, but when you really talk to Middle America, and you're like, "Hey, do you have a primary care doctor, have you Google one lately?" and pick the phone and tried to see if any of those doctors have room for you or will see you or have -- or what the wait is to actually get into one of them. And it's unbelievable what's happening right now in America. We've done a lot of market research, and there's massive demand in a lot of different demos for this type of offering. You also have a large percentage of Americans in the gig economy and younger people now that have high deductible insurance plans. You have these association plans that are becoming very popular across the country. And so if you think about like this type of model for a high deductible health plan, it's perfect. Even at the $15 a month level for someone that's just rarely sees a doctor, but wants to know they have a great doctor for that annual physical for their blood work, for that episodic issue that happens in the middle of the night, these are big markets. And I know everybody has a virtual solution where you can get an instant appointment with a doctor for $20, but that's not what we're offering at LifeMD. It's very different. And we think there's big demand for this.

Okay. Yes. I mean I had a little different understanding about the virtual primary care. I thought that you actually do get allocated to a primary care or primary care gets allocated to you. But we'll see how that all plays out once those kind of plans start picking up. Maybe let's spend some time on your patient acquisition strategy. How are your customer acquisition cost trending? Are your advertising channels mostly online? Do you guys have a heavy reliance on like Facebook, Google, and all the social network? Just give us some update there.

Yes. So our advertising is a mix of online and off-line. I'd say we're more heavily skewed digital versus offline. With that being said, we've been able to post some of the most effective, if not the most effective advertising figures in the industry. And just to give you a flavor of that, in the second quarter, when digital advertising rates were up some 30% sequentially over the prior quarter, we were able to produce an 8% decrease in cap while at the same time, acquiring new patients at an 11% greater rate than we had done in the previous quarter. We leveraged a lot of that into the third quarter where we reduced our sales and marketing spend by about 1,900 basis points as a percentage of revenue, the actual spend as a percentage of revenue in the third quarter versus what it was in the second quarter. So it is really one of our strong suits. We've built a phenomenal direct-to-patient, direct-to-consumer acquisition, and marketing team. And while we use a mix of that media, we also have a very flexible data-driven engine that powers a lot of that.

Okay. That makes sense. Maybe spend some time on the competitive landscape. I think your major competitors are, of course, Hims & Hers, Ro, Thirty Madison and GoodRx even in some context. Maybe talk about what actually differentiates you guys from others? And what do you view as key capabilities or offerings that will let the company stand out in this market?

Yes. I mean, my perspective on that, one of the biggest differentiators, I think, is our expertise in the direct-to-consumer marketing side. I think we've proven that we're able to build a very big business with a much smaller amount of capital than relative to our peers. So I think that's a very important expertise, patient acquisition, along with, obviously, delivering great care is essential in these businesses. Secondly, we've got some -- throughout our different brands, we've in-licensed different proprietary products, some of which have real intellectual property around them, which also, I think, is something that differentiates us from those other companies. And then like, thirdly, I think that our -- this whole primary care platform is a big differentiator. If you continue to expand this portfolio -- our portfolio of condition-specific treatments, those businesses have very strong stand-alone unit economics. And then if we can move those patients over to a long-term primary care offering, we give them an amazing doctor, I mean, that's the best intellectual property the company can have. So I think that strategy. Some of them, I think that Hims recently actually started talking about a very similar strategy. But I do think if you look at the entire space, that's a big differentiator.

Okay. The other thing which I get sometimes call -- questions from investors, like how much is COVID impacting these businesses in terms of some tailwinds or headwind? Maybe talk about that, how it's going back to your business? Do you think that customer interest in use of telehealth solutions, kind of the subscription may normalize after the pandemic subsides?

I mean we look at COVID as a -- it was certainly a big catalyst for telehealth. Probably took a theme that would have played out over 5 years and played out over 6 months or 12 months. I've yet to meet somebody that -- and a lot of polls have also shown the same thing that I've yet to meet somebody that's had an amazing -- purchased something from us or one of our competitors and says, "Hey, by the way, that was a terrible experience. I'd like to go back and see a traditional doctor for this medication" or -- I mean, so I don't think that telehealth is here to stay. It's -- we think that it's only going to grow. Nobody wants to go back to -- nobody wants to go back to the old way of doing things. It's certainly -- I mean, everything that we need to do in the U.S. to deliver better health care and improve outcomes, technology, and virtual care is -- I mean, it's the solution. I don't think anybody can argue with that. So I think what you said earlier, I mean, everybody is now trying to figure out like how they adopt the strategy. And I don't see how it could slow down.

Okay. Maybe let's talk about some of the key investment areas. Of course, we spent some time in the virtual primary care platform. What other opportunities you see compared with like big some JVs, partnership, and just to expand on your other offerings beyond just virtual primary care?

Sure. Look, we've been very vocal about expanding and kind of leveraging our platform across the traditional health care product world. We're currently -- have a strong pipeline of pharmaceutic companies that we're talking to about different kind of joint venture structures and opportunities where we can kind of leverage our patient population and our expertise and our platform to increase the accessibility of their products, whether they're diagnostics or pharmaceutical products or therapeutics and go directly to consumers. So I think that's something that you're going to see out of the company in the near term. We're also looking at other technology partnerships, whether that be kind of wearables or other technology that we can integrate into our platform to improve patient experience. So stay tuned. There's a lot of great stuff going, but I think you'll see a lot of strong partnerships out of LifeMD over the next 6 to 12 months.

Right. I think in one of your filings, you've talked about because you currently do partner with a number of third-party manufacturing…

Yes, we do. We do. I'm sorry, I misunderstood your question. Yes. So we have a couple of important technology partners. We partnered with Quest this year on the diagnostic side, have a great relationship there. Also -- and we partnered with another company called Axle Health, which is also a Quest partner, but they do in-home sample collection. We also work with another company called Particle Health, which has built a database of medical records. So we can pull all of our patient's medical records now into their LifeMD mobile app and desktop app when they sign up with the platform. And then we're also -- on the prescription side, we partnered with a company called Prescryptive that offers a prescription discount program, e-prescribing infrastructure and also is already in 50,000 pharmacies across the U.S. So we'll make it very convenient for our patients to access discounted medications when they need them, especially when they need them urgently at basically a pharmacy in any -- every major market.

I believe your business is predominantly in the U.S. right now. Have you guys looked into expanding into international market? Can that be a driver for long term? I mean, just maybe any general timeline on that, have you guys looked into that?

Yes. I mean, look, I think that there's a big opportunity for the -- especially for the LifeMD virtual care platform internationally. We've had several people approach us about different markets in Asia, India is a big market opportunity right now for telehealth. Obviously, Europe is kind of the most natural next place and the U.K. and Australia. And look, we obviously evaluate these opportunities as they come in. But my viewpoint is that the opportunity is so big in the U.S. right now, and we still have limited resources as a company that it's tough to really put a lot of energy into markets outside the U.S. There's a chance that over the next 12 months that we kind of partner up with the right people in some of those other big markets. But again, I want to do it in a way where, obviously, we don't take away resources from this enormous opportunity that exists in the U.S. and also we have capital constraints as well. We're very committed to getting the company to -- we see the company reach profitability by the end of next year. And so we want to really stay focused on the mission of growing our existing brands. And I think if we can do what we think we can do with the virtual care with the LifeMD platform we just launched next year, that's the most important thing.

But do you see any major regulatory or legal hurdles in terms of expanding outside of U.S.? And are there any particular countries where I think that's probably the most kind of easiest country center?

I think you need -- well, I think you need local partners. And look, there are a lot of companies -- there are a lot of countries, excuse me, that are easier than others. We haven't done extensive work. The markets that we've talked to third parties about, they have local presences -- local presence already in those markets and have already figured out the regulatory issues, but we haven't invested in really exploring regulatory issues for international expansion yet.

Okay, then what are your plans for this LegalSimpli software, I believe, If I'm pronouncing it right. To my understanding, it is a software as a service application for converting and sharing pdf documents. Any thoughts of divesting that business since it is non-core?

Yes. Look, the plan is to -- the plan is to monetize that asset, most likely sometime next year. It's had a little bit of a glitch this quarter just with a technical issue that they had. And -- but overall, the growth has been tremendous, and they're back on a really healthy growth rate now. And the plan is to spin that asset out, likely the right time to do that is going to be sometime in the first half of next year or next year.

Okay. Maybe let's spend some time on the health care. There's always so much focus on HIPAA and patient disclosures, and all the stuff. How do you guys gather and use data for analytics and AI? Is any risk there? Just spend some time here.

Look, we've invested heavily in compliance and making sure we're -- I mean, we are HIPAA-compliant across the organization, although because the business right now is a cash pay business, and we don't accept any third-party insurance or Medicare, or Medicaid. Therefore, requirements are a lot lighter. But nevertheless, I mean we are HIPAA-compliant. We have a great General Counsel, a Deputy General Counsel, I worked with several very large outside law firms as well. And I feel really good about where we are on the regulatory side. I don't really look at that as a -- it's a very low-risk right now for the business.

Okay. As we think about next few kind of maybe next 12 months and longer term, what do you think the next big milestone for the company? What should investors look out for? Just maybe give us a quick wrap-up comments there.

Yes. I'll give you my perspective, and then I'll hand it to Marc. But for me, look, we want to continue to diversify the platform. We want to continue to prove out the unit economics. I think it's very important. We're still a relatively young company, and we know that the unit economics are strong, but like as the actual data comes in and the vintages mature, I think that's something that investors want to see, and we're excited to continue to show that these unit economics will pan out to be what we think they will be. We want to launch, like I said, several -- expand into other indications, continue to diversify the condition-specific product revenue. We want to get -- we want to show that we can move patients from those -- from treatment of specific conditions onto our longer-term virtual care platform. We want to prove out direct that we can take that platform also directly to consumers and acquire patients at the right price. If we want to -- we intend to monetize PDFSimpli next year. We'd like to get some other important partnerships done. And I think if we do that, everybody will be very happy.

Yes, I think, Justin hit all the points. So it's continued growth of our core indication businesses, diversification of those businesses more heavily on the pharma side, growth of the virtual primary care that we just launched, and spinning out our non-core asset and obviously, improving economics and profitability, which we started to demonstrate, we think pretty significantly in the third quarter, and we expect that trend to continue on the way to our goal of achieving EBITDA breakeven, possibly profitability by the end of next year.

On that note, I guess we'll wrap up. We are on top of hour here. Thanks, Justin, thanks, Marc, for your participation. And thanks, everyone else for dialing in. Take care.

Thank you.