LifeMD, Inc.
Q1 2021 Earnings Call Transcript

Published: 13 May 2021

[Operator:]

Good afternoon. Thank you for joining us today to discuss LifeMD’s First Quarter Fiscal 2021 Results for the three months ended March 31, 2021. Joining us today is the Chairman and Chief Executive Officer of LifeMD, Justin Schreiber; and Company's Chief Financial Officer, Marc Benathen. 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 conclude today's call, I'll provide some important cautions regarding the forward-looking statements made by management during the call. I'd like to remind everyone that today’s call is being recorded and will be made available for webcast replay via instructions in today’s press release which is available in the Investor Relations section of the company’s website.

[Justin Schreiber:]

Thank you, operator and good afternoon, everyone. Thanks for joining us today for our first earnings call of 2021. And I hope that everyone on the call and their loved ones are safe and hopeful in the New Year, now that COVID vaccinations have started. As we enter a new phase of the pandemic curve, the management team would like to give thanks to all the frontline workers who have helped us get to this point and who continue to selflessly assist others before themselves. We are now well into the new fiscal year and LifeMD is off to a strong start both operationally and financially. Having served over 300,000 customers and patients since our inception, we continue to pioneer the future of healthcare, providing greater access to high quality, convenient and affordable care in 49 states, while converting more and more people to the possibilities of telehealth, as evidenced by our growing patient rolls. While the country continues to emerge from the COVID pandemic, which frankly helped accelerate our industry and our business, I am very pleased to report the LifeMD’s growth and acceleration show no signs of slowing down. Indeed, demand continues to build to record levels. We sensed a broader tectonic shift is happening that will radically change the way healthcare is delivered to and experienced by millions of Americans. We are excited to be a part of it. And we are committed to our mission of increasing access to healthcare through direct to patient telemedicine. LifeMD stands at the vanguard of a healthcare revolution. I can say without hesitation that our explosive growth and strong patient conversion rates to our subscription based models have done nothing but trend positively in 2021. And our fantastic results standard evidence of the trend. In the first quarter of 2021, we grew revenue by over 300% as compared to the same year ago period, and up 41% sequentially from the prior quarter. In addition to this phenomenal growth, we've also begun to see the early results of beginning to optimize and scale aggressively, by better leveraging our cost structure, while planting the seeds for building a leading telehealth business with profitability in mind. In the first quarter of 2021, we saw an approximate 15% to 20% improvement in customer acquisition costs versus the prior quarter and record level gross margins exceeding 80%. This coupled with the fact that 92% of our revenue currently comes from recurring subscriptions, is laying a very strong foundation for predictable growth over the long-term, while also paving our pathway to profitability.

[Marc Benathen:]

Thank you, Justin. And good afternoon, everyone. As Justin mentioned, we've had a fantastic start to fiscal 2021 thus far. Our products and services have been well received by our patients who have overwhelmingly made the active choice of converting their accounts to subscription based plans, given the high level of service we provide and the recurring maintenance indications we treat. We continue to see strong unit economics with our LTV to CAC ratios on recurring subscriptions at or approaching 2x on a 12 month basis, and the potential to well exceed 3x on a three year basis. As of the first quarter 2021, 92% of our revenue is now recurring subscription based. To get into the quarters results, revenue in the first quarter of 2021 totaled a record $18.2 million up 323% as compared to the same comparable year ago period, and a 41% from the fourth quarter of 2020. The growth was driven largely by a 349% increase in telehealth net revenues to $13.3 million. Our LegalSimpli subsidiary contributed net revenue of $4.9 million, up to 264% from the year ago quarter, including $1.3 million in deferred revenue associated with recurring subscriptions, total adjusted revenue on a non-GAAP basis would have been $19.5 million for the first quarter of 2021. Telehealth order volume grew 373% versus the year ago period or 41% sequentially to 164,452 orders. This increase was driven by a 252% increase in new patients, plus strong retention of existing patients. As a result of the significant performance we had in Q1 and our continued momentum, we are raising our full year of 2021 revenue guidance to $90 million to $100 million from the previously given guidance of $85 million to $95 million, reflecting annual growth in 2021 of between 141% and 168% versus 2020. As of the current reporting quarter, we are running on an annualized revenue run rate of $72.8 million calculated by the current reporting period revenues Gross profit in the first quarter increased 403% to $14.9 million compared to $3 million in the same year ago quarter. Gross profit as a percentage of revenue in the first quarter of 2020, increased to 82% from 69% in the same year ago quarter. The increase of 13% in gross profit was principally attributable to lower product costs, growth of our prescription business and more stringent inventory management.

[Justin Schreiber:]

Thanks, Marc. So we're off to a really strong start in 2021. But the best is yet to come. We elevated our infrastructure with key executive appointments, continued to optimize and improve our patient acquisition and patient care teams, transitioned over 90% of our patients to recurring subscriptions, launched Nava MD, and lay the infrastructure to supportive business poise for multiples of growth. All of this led to as Marc mentioned earlier, LifeMD raising our current fiscal year 2021 revenue guidance to $90 million to $100 million, reflecting upwards of 168% growth versus 2020. We believe that the platform we've built, supported by more than 150 full time and contract employees, and over five years of technological development will facilitate aggressive growth and even stronger unit economics in the years to come. Our focus remains on building innovative and differentiated telemedicine brands with improve access to medical treatment. Brands that are condition specific and allow for equal focus on customer acquisition, and, most importantly the delivery of amazing health care. In doing, so we will continue to transform the way affordable and accessible health care is delivered to patients. With that, I would like to open the call for Q&A.

[Operator:]

Thank you. We’ll take our first question today from David Larsen from BTIG. Please go ahead.

[David Larsen:]

Hey, guys, congratulations on a very good quarter and the increase in the guidance. I was hoping you can just comment on what you're seeing in terms of demand from the overall market. Obviously, there's been a lot of activity in the space. Walmart acquired a telehealth vendor. Amazon has entered into the space. I mean, what are you seeing from your own customers in terms of appetite for the cash pay telehealth business? Thanks.

[Justin Schreiber:]

Thanks, David. This is Justin. Look we've seen - we've had - we're having a very strong second quarter. Amazon, you know, entrance or supposed entrance or plans to enter, you know, condition-specific, DTC telemedicine have had no impact on our business. And you know, as we've discussed before, we don't believe that they'll have a significant impact. Long term, we believe that Amazon entering the space further raises the awareness for telemedicine and we believe we have a differentiated offering that can compete with Amazon or anybody else in the DTC telemedicine world.

[David Larsen:]

Okay. That's great. And then can you maybe give a little more color on like the sales and marketing spend your customer acquisition costs and I like, you know, to see that very significant pop in gross margin, just any more color around that would be very helpful, like longer term expectations for gross margin, and expected trends in the sales and marketing and CAC? Thanks.

[Marc Benathen:]

Yeah, this is Mark. Regarding the gross margin, we expect longer term to see gross margins very similar to the gross margins that we produced this corner. A lot of it was driven by one, we’ve seen out prescription business grow pretty significantly, which has a slightly higher gross margin versus the OTC business. Two, we’ve been managing in our OTC business our inventory a lot tighter. So both of those have certainly laddered up to very strong gross margins, which we expect to be able to maintain in the future. Regarding sales and marketing and CAC, as was mentioned by Justin, we saw a reduction. While we don't release our actual physical CAC costs, the absolute number, we did see about a 15% to 20% reduction in this quarter over Q4. We've continued to tighten up since then, and since that time, have been able to reduce that cost by about another 15% to 20% in the second quarter, and on a go forward basis. So we're going to continue to see on an absolute dollar basis figures that are very similar to what you're seeing in Q1 through the remainder of the year, potentially a little bit higher, but only because you would be acquiring substantially more new patients per day. But on a cost per acquisition basis, we expect to get another 15% to 20% tighter, which is where we are today and have that continue to flow through the remainder of the year. And longer term, we think as our brands get bigger and bigger, there's naturally economies of scale and we'll continue to see further reductions in subsequent years to our CACs and obviously improving LTV CAC ratios.

[David Larsen:]

That's very helpful. Marc. Thanks so much. Can you talk a little bit more about the nature of the sales and marketing spend, like what is actually going into, is it going into television, or more sort of online advertisements?

[Marc Benathen:]

Yeah.

[David Larsen:]

And…

[Marc Benathen:]

We have a mix of channels, there's significant amount of digital spend, social, SEO, SEM, obviously, there's television and radio. But it's pretty broadly spread across those different channels. We've tested a few other more traditional media channels as well. But a lot of it tends to be either media-enabled or digitally-enabled marketing channels with 100% of it really geared towards discretionary patient acquisition growth, to accelerate our growth in the future.

[David Larsen:]

And then with regards to like say, a 20% improvement in CAC, how do you actually get to that? Are the advertising costs improving given your scale? Or are you shifting more dollars to a lot of cost channel…

[Marc Benathen:]

Its not about that, as we've kind of built our brands, I mean, one, digitally there's more recognition of your pages your positions obviously improving. Two, in our earlier days, and, you know, many of our brands have only so much history. So we've done a lot of testing of our various marketing channels. And we've been able to refine those tests and really hone in on what works and what doesn't. So that - those are really the biggest ways that we're getting there. And look, as we get more scale, we'll be able to, you know, have more buying scale as well in the future, which hasn't necessarily fully materialized yet, which is why I mentioned that we do expect to see further improvements in subsequent years.

[David Larsen:]

That’s great. And just one more for me, and I'll hop in with you. How is Nava MD tracking? I know you recently launched that, but any early signs or any feedback from the market?

[Justin Schreiber:]

I'll take that one, David. Yeah. So we did recently launch it. We did kind a kind of soft launch. We were working a little bit more on just bringing on some other opinion leading dermatologists and fine tuning some of the protocols. So the answer to your question is, we've done a lot of different testing and optimization. We're actually seeing patients arrive at the site, you know, less expensively than what we're seeing with Rex or some or other brands. So we - you know, very optimist to say, its a great opportunity there. But we're still - we're not seeing a lot of revenue right now, from that brand, we expect to start to see like some more meaningful revenue this quarter.

[David Larsen:]

Great. And then just one more, what is your retention rate right now. So for all of the customers that you're bringing on board that you - were you're selling them products through telehealth orders, what is your overall retention rate?

[Justin Schreiber:]

That's not a figure that we necessarily put out publicly for competitive reasons. But you know, as I mentioned, we put out what our directional LTV CACs are. So we're seeing on average about a two to one return in the first year. We are retaining a substantial amount of those patients within the first year, as you move through, there's a little bit of fall off in the first month. So typically, you know, your first re-bill, you'll retain somewhere around 75% to 80% of patients, and then after that you're looking at single digit fall-off in any subsequent billing period. And once we get to around the fourth or fifth billing period, you're looking at really pretty minimal fall-off if that.

[David Larsen:]

Okay. And I think 92% of the revenue is subscription based. Is that correct?

[Justin Schreiber:]

Yeah, pretty much, essentially most, if not all the business outside of the third-party marketplace thousands of subscription based at this point.

[David Larsen:]

Okay, thanks very much. I'll hop on into the queue now. Thank you.

[Operator:]

Thank you. We will now go to our next question from Andrew D'Silva from B. Riley Securities. Please go ahead.

[Andrew D'Silva:]

Hey, good afternoon. Congrats on the quarter. And thanks for taking my questions. So I'm just a little bit curious if you could provide a little bit more granularity on the breakout of expenses, as it relates to LegalSimpli and the telehealth business. I'm just trying to get a better understanding of how to how to model LTV to CACs as it relates to telehealth side?

[David Larsen:]

Yeah, you know, without going into the specific line items, when you look at the sales and marketing expense line, which is also the largest line in there and what really fuels the growth for the business. Roughly about $13.5 million - $14 million of that marketing expense was associated with the telehealth business. And the remainder of that expense roughly was associated with the LegalSimpli business. When you look at a lot of the other expense categories, LegalSimpli as a pretty, you know, inexpensive business, as is our telehealth business to run from an infrastructure standpoint. A lot of it has to do around the sales and marketing, I mean, the other lines, there's some payroll and a few other categories. But it's not too significant, sales and marketing would be the most material area to look at the breakout.

[Andrew D'Silva:]

Okay. And that business did very well, both year-over-year and quarter-over-quarter. I'm just curious if that was a one - I understand it's highly subscription based model. But was there anything one-off that took place that resulted in that growth? Or is that fairly strong filler cadence that we should expect as the year goes on?

[David Larsen:]

Yeah. I mean, obviously, you're not going to see a doubling every single quarter as the business gets bigger, but you should expect to continue to see very significant growth in that business. A lot of it has to do with - they're starting to hit critical mass, there were some early, you know, technical issues and marketing optimizations that had to take place. And those are all behind us at this point. So the business has a lot of very predictable and tremendous growth, and you should continue to expect to see that materialize throughout the year.

[Andrew D'Silva:]

Okay, good. And moving back over to telehealth side of the business. Obviously, we're getting close to critical mass. And in both the hair and men's health I was curious if there were any sort of tuck-ins or bolt-ons that you're seeing out there that makes sense for either of those brands, or any of the upcoming brands, things like patient monitoring initiatives and stuff like that seem to be very relevant, particularly given the differentiated platform you are developing?

[Marc Benathen:]

Yeah, Andy, I'll take that one. We're looking at a lot of different inorganic opportunities. And we haven't looked at anything. We're pretty familiar with the patient monitoring space. We haven't done a lot of work in that space. And that's not somewhere where I see us, you know, doing something in the near term. But, I mean, we're seeing new opportunities, probably wouldn't be accurate to say on a daily basis, but certainly, we're seeing at least on a weekly basis, you know, interesting opportunities in the traditional healthcare product world, even in the - over the - even in the proprietary over the counter world as well, right, just stuff that could be very synergistic with our current offerings. And, look, we're, as we said, previously, we're going to be very aggressive and pursue those that make sense. And continue to drive unit economics and revenue growth across the business.

[Andrew D'Silva:]

Okay. Last question for me is just related to the subscription prescription style model that you're building. How much of the benefits that you saw in the first quarter would you attribute to things like the compounding proprietary products that you've been introducing recently? And if those have been fruitful, are you having any other new launches related to proprietary, either compounded OTC products coming out with any of the brands in?

[Marc Benathen:]

We're seeing some progress with the composite hair loss products. Not as much as we would have liked to. And there's a simple reason for that. It's, you know, we've just been aggressively expanding our infrastructure and bandwidth across the business. And our telemedicine business has been growing, and especially our, you know, our men's health line has been growing, you know, so aggressively that unfortunately, we’re still a company that has to decide, where we're going to kind of focus bandwidth. And, you know, we've hired a lot of people from, you know, creative people to developers, project managers, brand managers. And so we're - we have a lot of energy right now focused on both Nava and on the telemedicine business and compounded topical drug business within the SpearMD brand. And as I said earlier, to date, like I - we believe that we're going to start to really see very strong traction with both of those.

[Andrew D'Silva:]

Okay, great. Thank you very much. Best of luck going forward.

[Marc Benathen:]

Thanks, Andy.

[Operator:]

Thank you. That will conclude today's question-and-answer session. I would now like to turn the conference back over to Justin Schreiber for any additional or closing remarks.

[Justin Schreiber:]

I just like to say thank you to all of our shareholders. And all of our employees who have been supportive, especially over the rather tumultuous 30 days we've been through. Like I said in the beginning of the call, this company has an extremely bright future. And, you know, really look forward to continuing to keep everybody updated in future calls like this. Appreciate all your support, and have a great evening.

[Operator:]

Thank you. Before we conclude today's call, I would like to provide the company's safe harbor statements that include important cautions regarding forward-looking statements made during today's call. The information that the company has provided in this conference call includes forward-looking statements within the meaning of Section 27 A of the Securities Act of 1933 and Section 21 E of the Securities Exchange Act of 1934. As amended regarding, among other things, the company's plans, strategies and prospects, both business and financial. While the company believes that its plans, intentions and expectations that are reflected in or suggested by these forward-looking statements are reasonable, the company cannot assure you that it will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Many of the forward-looking statements made during this conference call may be identified by the use of forward-looking words such as believe, expect, anticipate, should, planned, will, may, intend, estimated and potential among others. Important factors that could cause actual results to differ materially from the forward-looking statements made during this conference call include market conditions and those set forth in reports or documents that the company files from time to time with the United States Securities and Exchange Commission. All forward-looking statements attributable to LifeMD Incorporated or person acting on its behalf are expressly qualified in their entirety by this cautionary language. Before we end today's conference call, I would like to remind everyone that this call will be available for replay starting later this evening. Please refer to today's earnings release for the replay instructions available via the company's website at www.lifemd.com. Thank you for joining us today and this concludes the conference call. You may now disconnect.