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

Good day, and welcome to the second annual Winter Wonderland Best Ideas Conference. The next presenting company is LifeMD. [Operator Instructions] I'd now like to turn the floor over to today's host, Marc Benathen, Chief Financial Officer of LifeMD. Sir, the floor is yours.

Thank you, and welcome, everyone. My name is Marc Benathen, and I'm the Chief Financial Officer for LifeMD. So LifeMD is a rapidly growing direct to patient telehealth company, which leverages our expertise in medicine, technology, marketing and general health care to make health care more access-affordable and convenient. And how do we do this? Well, our proprietary technologies telehealth platform integrates a 50-state digital pharmacy, has treated over 427,000 patients and growing. And at this point in time, is currently approaching 500,000 is all powered by, as I mentioned before, proprietary technology platform, which handles a 50-state physician network, a national pharmacy network a full-scale EMR, electronic medical records and full functionality for our patients for everything from their appointment, the scheduling to dispensing of prescriptions through our national third-party pharmacy network. We have a diversified brand portfolio, which I'll get into in a little bit. And recently, in the last couple of days, we launched our Virtual Primary Care clinic, which will treat patients for general primary care as well as a partner across all of our indication-specific offering. Next slide. So how does LifeMD differentiate in the direct-to-patient telehealth space. We believe we differentiate in a few ways. One, we have a very focused condition-specific care strategy. So when a patient comes to us, they typically come to us for treatment for a specific treatment or ailment. We're able to drive smarter acquisition that way at dramatically reduced cost to much of the competition and then move those patients through the funnel and work with them on a variety of their care needs across our platform. Two, all of our technology and our entire telehealth platform is 100% proprietary to the company, has been in-house developed technology. And as I mentioned, is end-to-end servicing all of the needs of our patients, our clinicians and our partner pharmacies. Three, we have demonstrated time and time again that we have a very deep expertise in patient acquisition, direct marketing, which has all enabled us to build the company approaching $100 million of revenue that's publicly guided to get to profitability on an EBITDA basis by the fourth quarter of this year with a fraction of the capital of a lot of our competition. And then lastly, more recently, we've rolled out Primary Care, which we believe will be a differentiator. We intend to launch our Primary Care with a longitudinal relationship with patient, where there'll be one-on-one access for our patients to a variety of clinicians within our platform who cannot only seek treatment for indication-specific offerings they work with us today on, but also the general primary care needs, which we think will not only bolster retention, but will allow us to penetrate the health care market in a variety of different manners. LifeMD is direct-to-patient health care experience. How does it work? So it all starts with brand discovery. The patient will see an online digital advertisement, off-line media advertisement, which may be radio, TV or direct mail or may generally visit one of our telehealth consumer-facing websites. From that point, they typically will fill out a medical intake form, which will allow us to gather key information on the patient and determine if treatment is appropriate for that patient. The patient at that point, if they're in an asynchronous state, their medical records will typically be reviewed -- or will always be reviewed by the practitioner who can schedule a direct consultation with the patient, but alternatively, treatment can be prescribed using the medical records. In the synchronous state, consultation will be scheduled directly between the practitioner and the patient. And if treatment is appropriate, the prescriptions will be dispensed directly or over-the-counter product directly to the patients, at which point the patient will continue to be followed by our patient care team as well as our clinicians within the overall life in the ecosystem and a personalized treatment plan will continue with that patient as a 90-plus percent of LifeMD's patients are on recurring subscription. So for us, that long-term patient relationship and relationship with their physician is extremely important, than a key part of our business. Next slide. The end-to-end technology, so as I mentioned before, it covers everything from physician to pharmacy, to consumer patient to all of the integrations that happen in between. It has mobile capabilities, desktop capabilities, scheduling capabilities, EMR is 100% HIPAA compliant. Even though the company today is cash pay, we are very, very focused on the regulatory side of the business and maintain 100% HIPAA compliant. Additionally, we've partnered with some of the leaders in the industry that are fully integrated within the company's platform and offering. Those include Quest Diagnostics for lab work; Axle Health for in-home diagnostics and phlebotomy; Particle Health which helps power the company's proprietary EMR. And we're in the process of finalizing a national pharmacy drug discount card with our partner, Prescryptive. Next slide. So LifeMD, what are the key benefits of it? One, cost savings, even though we're a cash pay model, we've [ sold ] out a lot of the middleman costs, a lot of the brick-and-mortar costs. And we're actually able to offer the majority of our patients cost savings over their traditional high deductible health plans or in the case of those that don't have high deductible health plans, many of these particular prescriptions or treatments that we offer can oftentimes be at very competitive prices. Two, convenience, we're a one-stop shop. The entire platform services used [indiscernible]. Very transparency, everything is right there, all of your medical records -- on our EMR integration integrates with about 90% of the records across the U.S., obviously, with consent from the patient. And then lastly, it's a single point of access for not only our patients, but our physicians and our pharmacies. Next slide, next slide. So our brands address very large underserved markets that are growing and continues to be penetrated more and more by the digital market. Men's health, hair loss, allergy and asthma, dermatology and primary care are our main markets today and they combine for an over $300 billion total addressable market. Next slide, please. Rex MD is the company's largest brand focused on men's health and currently accounts for approximately half of the company's total revenue. Rex MD offers predominantly prescription medications aimed at treating erectile dysfunction, premature ejaculation, hair loss, insomnia, testosterone and other related mental conditions. We're particularly proud not only of the growth of this particular brand and all of our brands. This brand have continued to experience triple-digit year-on-year growth. But the very high ratings that our consumers continue to give us, which has enabled the growth to continue to be very strong in this business and to continue to have significant retention of existing patients. Next slide. So Slide 12, and I'm particularly very proud of this. This is a slide from a study that was done by Verizon Media, which I think is Yahoo Omnibus in 2021, independent market research showing that Rex MD was the third most third largest and third most popular e-pharmacy across the U.S., behind only Amazon and Capsule. And what's particularly very impressive about this is Rex MD did this with a fraction of the budget of a lot of these competitors, Rex MD launched in December 2019, so a fraction of the time. And I think it really owes itself to the expertise that we bring, not only from a patient acquisition standpoint, but our tremendous clinical team brings, we actually have 100% retention of our physicians, which we're particularly proud of. And the tremendous expertise that we bring in the overall experience, our technology platform, which has enabled us to continue to enjoy some of the best retention in the industry. Next slide. So Shapiro MD is the company's longest standing brand that was launched in 2017. It's focused on men and women's hair loss. And interestingly, more than half of our Shapiro patients are female, which has also helped the retention full within this business. As you'll notice, we have particularly high customer ratings within the Shapiro business, which has enabled us to continue to be a leader within the hair loss industry. Next slide. Cleared is our most recently added brand. We actually acquired the Cleared business through an acquisition we did in January. This is a telehealth destination for end-to-end allergy treatment, including FDA-approved OTC products, subscription treatment, allergy testing, and everything else in between. This business also focuses on the asthma and immunology market. Relatively small business that we acquired with about 18 months of history. We acquired it a little bit more than onetime sales with most of the consideration given for future achievement in the form of earnouts at a fraction of the potential revenue that we can drive in the future. We believe this business is going to be extremely high growth for us in the future. Additionally, not only is this a direct-to-patient business, but Cleared also has several leading pharma partnerships with large pharma and biotech companies, whereby we directly partner with those companies to take over patient adherence, digital marketing and digital project management. Next slide. So as I mentioned before, the allergy, asthma, immunology market, very large markets, 1 in 3 U.S. adults will suffer from allergies, about 75 million Americans will suffer across the U.S. It tends to be a very chronic condition with patients often time on treatment for multiple years for allergies, sometimes for a lifetime and the spend tends to be rising. And one of the really interesting stat here not necessarily on this page, but the average patient oftentimes can have to wait anywhere from 1 to 2 months in some markets to have to be able to get access to their allergist in the case of meeting an appointment or more traditional in first appointment. Next slide. Nava. So Nava is our direct-to-patient telehealth brand for dermatology focused on women. Today, the business is -- we launched this business in 2021, today, this business is predominantly focused on prescription products, but we will be mixing in very shortly proprietary OTC -- FDA proved OTC products to pair with the prescription. Those OTC products were under the Restorsea's brand and backed by over $50 million of R&D through our partners, and we have exclusive direct patient licensing rights over those OTC products. And lastly, LifeMD is our recently launched Virtual Primary Care business, where we're going to provide 24/7 access to our already very high-quality physician network for the purposes of primary care, urgent care as well as chronic care needs. It's a platform, as I mentioned, with mobile-first capabilities as well as desktop capabilities fully integrates with the pharmacy, prescription drug discounts capabilities and very robust capabilities from a partnership standpoint as well as nationwide 24/7 access. Next slide. Moving on to the company's financials. As you can see, we've enjoyed incredibly robust growth throughout our history with 149% year-on-year growth in 2021 versus 2020. We're projecting growth in the range of about $145 million to $148 million. This is the public guidance that we gave 22 over our 2021 estimates, which is roughly 60% growth in our forecast. In addition, we publicly guided that the company will improve our EBITDA and cash burn every single quarter between now and the end of 2022. We already began those improvements in Q3 with a 25% sequential improvement in that metric. And we will reach adjusted EBITDA or cash flow profitability by the end of 2022. As you can see, the recurring revenue nature of our business, the strong patient satisfaction and the quality of our products and offering has enabled us to continue to drive results that are very consistent on a sequential basis. The company has enjoyed continuous improvement in our quarterly revenue goals with sequential growth happening every quarter since the third quarter of 2019. What drives our business? So we have very strong KPIs. We'll talk a little bit about it on the slide. But in addition to the company's core telehealth business, we have a noncore subsidiary called WorkSimpli which is in the direct-to-consumer document services business, which we intend to divest in the first half of the year. That business has the potential to bring in, in the range of $50 million to $100 million of cash back to the company through a divestiture given the $25 million of revenue it currently does with a triple digit annualized growth rate. As you can see, 93% of our revenue is recurring subscription, very high gross margins exceeding 80% and strong volumes. And particularly important, we don't do anything in our company without growing unit economics because ultimately achieving profitability in the future and sustaining that profitability is all underscored by your unit economics. So we like to look at the revenue we get, the return on our ad investments that we get as well as how long it takes us to breakeven from a unit economic standpoint. Typically, we generate about $400 of revenue in the first year from our patients in the telehealth business. We earn approximately a 2x return on our initial ad investment in just the first 12 months. On a 3-year basis, those returns move to about 3 to 4x on the initial investment. And typically, we will break even in 3 to 5 months. But more recently, we've actually been able to push this down to closer to 2 to 4 months. And then in the noncore subsidiary, while we plan on divesting the business this year, it is a strong cash flow business with unit economics to breakeven quickly and a strong return in the first year. Next slide. So I'm not going to go into the details on the management team, but our management team is a mix of those with very strong direct-to-consumer expertise and marketing expertise, paired with health care industry experts and leaders in health care that have proven track records paired with very strong technology and regulatory background. Next slide. So as I mentioned, we have a noncore subsidiary WorkSimpli. We own 85.6% of that company. It relates to a legacy strategic investment the company had back in 2018 before we were 100% focused on telehealth. The primary product within WorkSimpli is the PDF document editor, converter, compressor. In addition, the company has some HR-related products as well as digital signature product. As I mentioned, we plan on divesting this business in 2022 and are currently in the early stages of a process that we expect and that's a company pretty significant cash back to the company, which we intend to invest and continuing to accelerate the telehealth business possibly through inorganic means as well as other shareholder initiatives. And that concludes today's presentation. I'll now open it up to any questions.

So the first question, how fast is Rex MD growing and what's the outlook for growth going forward? Great question. Rex MD is currently growing by triple digits annually. We do expect that number in the coming years to be sizable double digits instead of consistently triple digit. The outlook going forward for growth is tremendous growth to continue in the future. In fact, we expect within the next couple of years, Rex MD has the potential to exceed $100 million by itself, which obviously would be greater than the company's total revenue. Additionally, Rex MD from a brand profit standpoint before corporate overheads already generates 7-figure cash flow per year. I think that concludes today's presentation and all of the questions on the list. We actually have one more question that came in. What's the breakeven and how much cash will you have at breakeven? So ending the fourth quarter of 2021, the company is going to have over $40 million of total cash. We publicly guided in 2022 to have a cash burn in the range of $14 million to $20 million. So we have approximately on the downside case, $20 million of incremental cash to achieve breakeven. At that point, we expect the company to continue to be self-funded. And that does not even include the potential benefit of the divestiture of the WorkSimpli subsidiary, which, as we mentioned earlier, we believe could be worth anywhere from 2 to 5x the top line revenue, which will be in the range of approximately $50 million to $100 million. I believe that is it from a question standpoint. Thank you all for joining the LifeMD presentation today and have a great day. Thank you.