LifeMD, Inc.
Q4 2020 Earnings Call Transcript

Published: 29 Mar 2021

[Operator:]

Good afternoon. Thank you for joining us today to discuss LifeMD’s Fourth Quarter and Full-Year 2020 Results ended December 31, 2020. Joining us today is the Chief Executive Officer of LifeMD, Justin Schreiber; and Company's Chief Financial Officer, Marc Benathen. Following their remarks, we'll open the call to your questions. 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 the telecom replay via instructions in today's press release which is available in the Investor Relations section of the company's website. And now I'd like to turn the call over to LifeMD’s CEO, Justin Schreiber. Please go ahead.

[Justin Schreiber:]

Thank you, Christy and good afternoon, everyone. Thanks for joining us today. 2020 was an incredible year for telemedicine and a stellar year for LifeMD. Our top line grew by nearly 200% to a record $37.3 million, adding back $917,000 in deferred revenue, we lost due to our record level of subscriptions. Adjusted sales totaled $38.2 million for the year. And we ended 2020 exceptionally strong with December revenues hitting a monthly record of $5.2 million, up 316% over December of the previous year. In fact, December 2020 alone eclipsed the entire fourth quarter of 2019, 2020 was also a year of unprecedented change caused by the pandemic. Despite the challenges and heartbreaks, perhaps one silver lining to the pandemic is how it catalyzed the rapid expansion and evolution of the telehealth industry for the benefit and well being of consumers. And we have evolved and expanded along with it from a branded telemedicine Products Company into a leading provider of end-to-end Concierge Telehealth products and services. Our recent name change from Conversion Labs to LifeMD reflects this evolution. Ever since we embarked upon this journey two years ago, our vision has always been to radically change healthcare by making access to the best physicians diagnosis and treatment easily accessible, convenient and affordable. From discreetly treating men's sexual health and men's women's hair loss to the upcoming rollout of our new teledermatology and concierge telehealth services, LifeMD is now at the forefront of a telehealth revolution, improving health care for countless Americans. Now with the first quarter of 2021 nearly close, we continue to expect more than $70 million in revenue for the quarter, which would be up more than 30% sequentially, and up 295% compared to the same year-ago quarter. All this growth reflects the huge investments we made in the second half of last year, and especially in the fourth quarter to scale our platform and capture new customers and market share. This has driven record levels of new subscribers and net orders in our telemedicine business. In fact, our subscription rate for new telemedicine orders has grown from 20% early last year to now more than 91% and we believe with new subscribers are worth far more than the investment we made to acquire them. This also means that our traditionally reported annual recurring revenue from subscriptions is now nearly the same as our top line annual run rate, with our top line run rate currently exceeding $75 million based on March estimated results.

[Marc Benathen:]

Thank you, Justin and good afternoon, everyone. It has been about a month since I joined LifeMD and I could not be more impressed by the energy and passion of the entire team. And this has been evident in the phenomenal growth the company has been driving over the past year. Like Justin, I truly believe we have only begun to scratch the surface of LifeMD’s long-term potential. As Justin mentioned, 2020 was a record year marked by substantial growth across all of our products and services. Revenue in the fourth quarter of 2020 totaled a record $12.9 million up 227% on the fourth quarter of 2019. The growth was primarily driven by a 293% increase in telehealth net revenues to $10.3 million. Our PDFSimpli subsidiary contributed net revenue of $2.6 million up 96% from the year-ago quarter. Including $917,000 at year-end deferred revenue associated with recurring subscriptions, total adjusted revenue on a non-GAAP basis would have been $13.8 million for the fourth quarter of 2020. Annual recurring revenue or ARR from subscriptions at December 31 2020 reached a record $53.3 million up 443% compared to the end of 2019. As of today, we estimate our ARR from subscriptions was increased to $75.9 million up 267% year-over-year. We calculate ARR from subscriptions by multiplying by 12, the monthly sum of revenue attributed exclusively to subscription sales.

[Justin Schreiber:]

Thanks, Marc. Clearly, the growth we've been experiencing over this past year has been incredible. We nearly tripled our top line in 2020. And now just three months into the New Year, we're hitting an annualized revenue run rate of more than $75 million. Our growing recurring revenue streams in subscriptions now represents about 91% of our total revenue given that nearly all of our customers are now on a subscription product either monthly or quarterly, we have much greater visibility into our revenue and future growth rates. We’re seeing 2021 already on track to be another record setting year, even if we fully discount the contribution for new products and brand launches during the year. Our increasing momentum throughout 2020 and into the New Year reflects how our telehealth platform has been able to provide accessible healthcare to a rapidly growing number of patients across the country.

[Operator:]

And first we’ll go to David Larsen from BTIG. Your line is open.

[David Larsen:]

Can you talk a little bit more about the subscription component of the business, obviously the revenue coming from subscription services has increased significantly as a percentage of total, just how exactly does that work please and what's actually included in that subscription like is it 200 bucks a month, is it 200 bucks a year and I'm watching your customers actually get with that. Thanks.

[Justin Schreiber:]

Thanks David, Marc can you take that or?

[Marc Benathen:]

Yes, so the most of the subscription revenue and all of it on the telehealth business today is product driven, so what the customer gathers on the prescription side say on Rex or it’s on the OTC or prescription side on Shapiro, they get the products that they need for their given diagnosis, they will get that subscription every box shipped to their door we charge them on a recurring basis alternatively, we also do offer three months subscription options where you will get a three month supply and then it will get billed every three months. But it's truly recurring revenue in nature where we build a customer on a recurring basis every month auto ship, auto charge.

[David Larsen:]

Okay, great. So it's a subscription to the product over the course of say a year for example and the members charge on a consistent and regular basis and ship to them like every quarter, every month?

[Justin Schreiber:]

David, this is Justin. It's essentially the patient or the customer is either paying a monthly or quarterly fee which is all inclusive of the treatment that our physicians provide right and the product whether it be prescription or OTC that the patient or customer is receiving from us.

[David Larsen:]

Okay, great. Thanks. And then can you maybe talk a little bit more about the incremental service lines that are going to be developed and deployed over the upcoming months like dermatology, mental health, cholesterol which ones do you think can drive the most revenue for you, which ones are you most excited about?

[Justin Schreiber:]

Yes, David. The two that we're really excited about first of all, we've launched in the last couple of weeks compounded topical drug offering prescribed by a physician which was sold in combination given to patients in combination with our patented shampoo conditioner products for hair loss and the initial data from that is it's very, very strong, I mean even stronger than when we initially launched our first Rex offers. So we're very encouraged about that, we think that there's a very big opportunity in female hair loss, it's very difficult for women to get to a dermatologist for treatment indications and so we're very optimistic about that offering this year and then we're launching this week actually we're going to soft launch our Nava MD dermatology offerings which again we don't have data on because we haven't launched that but we've closely followed some of our peers with very similar products. So I mean we believe that that's going to be a meaningful contributor to growth this year as well and then look for competitive reasons I'd rather not speak specifically on other indications that we plan to launch in this year but I'll just say generically that we're looking at several other markets that we think are a perfect fit for direct to consumer telemedicine, total addressable market are massive, even bigger than erectile dysfunction and hair loss and we're very, very excited to launch another in addition to scaling the hair loss and launching the derm business and adding indications in addition to patients for health and direction we're very excited to prove out another one or two indications this year in massive markets. So more to come on some other areas, David.

[David Larsen:]

Okay, and then just one more for me, can you talk a little bit about your the primary care and concierge solution that you're going to be bringing to market any more detail around that would be very helpful. I think I heard in your prepared comments you said that members and patients will have sort of immediate access or direct access to the same physician on a sort of consistent basis just will those, any more color around that would be helpful like will you be employing those doctors, will those come from a sort of rented network initially or like with a monthly fee will be for those patients will be very helpful and then also if those members need a referral into an acute care system, do you have any sort of longer-term plans for developing those types of provider networks? Thank you.

[Justin Schreiber:]

So to start to provide a little more detail on the LifeMD offering, LifeMD is going to be a cash pay subscription based concierge care offering, we anticipate the range of price from $50 to $150 a month for more integrative care or provider that specializes in integrative medicine. We see LifeMD as being an incredible thing for our patients long-term, that was the genesis of the concept it was like what we're bringing in large numbers of patients for these condition to specific treatments whether it be erectile dysfunction, hairloss, dermatology, weight loss whatever it is right we have these. We have a large number of patients it's coming in the door every single day and initially my thinking was, our thinking was what can we do to like impact positively the long-term health of these patients in a more profound way rather than treating them for this initial condition and when we kind of combine that thinking with the fact that most Americans are on high deductible health plans where it's oftentimes expensive for them to access prescription medications or even to go see a primary care physician, we believe that many of these patients that are already on our platform for condition specific treatment would love to pay $50 or $100 a month, some of them more to have in essence a doctor in the family to pick up the phone when something's wrong and they want to talk to the doctor to be able to get a prescription refilled. And in addition to like providing that ongoing care for these patients, for a small monthly cash fee that everybody can afford, we also can provide these patients heavily discounted generic drugs, we can provide them as discounted labs, we can offer them discounts on a lot of these different more lifestyle treatments that are cash pay things like EB things like weight loss. So the net amount that the patient is actually paying to have this incredible concierge service with a long-term relationship with the same doctor, we looked at as being affordable to every American needs to be presented in the right way. It's going to be very popular. As far as David, thinking about the brick and mortar or referral relationships, it's a specialist. We think that as we scale this platform and start to put patients on the platform, we think that there are going to be a lot of opportunities for us to partner with regional kind of brick and mortar networks, right that obviously are going to want and specialists, right, they're going to treat those patients. So initially, we haven't lined that up, we we've spoken with some different groups that have expressed an interest as business scale, we have no interest in building that out, right. And we believe that we know that we can treat the most of the things that these patients need to see a doctor for in a virtual setting. And so the plan is to refer patients to partners, right as they when they need to go and see a doctor in person. Does that help or anything that I missed?

[David Larsen:]

Nope, that's actually very helpful. I have yet to meet an acute care hospital system that would decline incoming referrals, virtual primary care practice. So makes sense to me, thanks very much. I’ll hop back in the queue.

[Justin Schreiber:]

Yes, and one thing I mentioned, David, that I forgot to emphasize, we're building a great technology platform that is similar to the kind of one medical but the world, right, that would integrate in one place, all the patients lab, almost there kind of medical history with us pull in all their medical records, when they initially onboard onto the platform. And so we're really excited to launch that we're aiming to launch on the summer. And also something to think about right, it also really encourages or enables us to be able to offer other conditions specific treatments to patients within our system. So, for instance, once you come into LifeMD as patient, you'll obviously be able to access treatment from Shapiro for loss or other anything in the family of LifeMD brand. So, we think it'll really pull everything that we're doing nicely together. And then be a great way for us to develop a longer-term relationship with our patients.

[Operator:]

Next, we'll go to Andrew D'Silva from B. Riley Securities. Your line is open.

[Andrew D'Silva:]

Just thought, I have a couple quick bookkeeping ones. As it relates to share count, is there a reason your 2020 share count off a full year's worth is higher than your fourth quarter 2020 share count?

[Justin Schreiber:]

I'm not sure about that. Andy, I'd have to check and get back to you. I mean, it sounds like it was an error.

[Andrew D'Silva:]

Okay, I wasn't sure if there was some sort of action or buyback or something I missed, but okay, that's fine. And then could you just discuss buys as you enter 2021 and what kind of benefits you’re seeing post-Election? And I'd also just be curious if you could let us know how we should think about modeling overhead tied to call center?

[Justin Schreiber:]

Sure. Overall, we've seen the fourth quarter or third, fourth quarter especially before the election, coming to the holidays was a very expensive time for the media. Our media costs were at least double, a lot of the time from what they were earlier in the year and they've come down considerably in 2021. Also, we've seen a lot, we've never realized a lot of operational efficiencies. And we've done a lot of other kind of optimization areas where we've been able to optimize our advertising and our checkout processes and other systems that helped us to put downward pressure on our overall acquisition costs. So I don't know the exact number Andy, but our acquisition costs more scale this quarter are significantly lower than they were in the fourth quarter of last year, Marc, I don't know if you could provide any additional color in that?

[Marc Benathen:]

In general, what we're seeing strong returns on the advertising spend were significantly lower as Justin mentioned in quarter one, what we're typically seeing is from the cohorts that we've had that have been in existence for 12 months or more than we're paying back on the advertising investment within the first three to four months and we're more than doubling our money within the first 12 months. So those are strong returns and as you carry that forward and we continue to get more and more tenure with those subscribers and I would also remind you this was pre-off transitioning a lot of folks to the subscription model, we expect to see very substantial long-term returns.

[Andrew D'Silva:]

Okay, that makes sense. And can you make some color on the call center?

[Justin Schreiber:]

Yes, I mean the call center, without really saying exact statistic we are receiving a strong return on investment, we're seeing good up tick for competitive reasons we don't necessarily share exact specifics but what I would say is ever since the first launch that we got up and running we're seeing a strong return on investment each month as far as growth in the call center has about a 250 seat capacity and then we're going to grow our capabilities there as long as it makes sense but it's also going to produce incremental revenue. So it would be more than a loss from a financial modeling standpoint.

[Andrew D'Silva:]

Okay.

[Justin Schreiber:]

I think an important thing to point out is, if we look at where CPAs are now even as we're scaling, we see a massive, massive opportunity even in the ED market right to continue to really grow our business throughout this year and probably beyond something they make projections two or three years out but I really want to emphasize everybody on the call that I mean CPAs are, there's a lot of opportunity here even in these initial markets especially in erectile dysfunction we're continuing to tighten the business, we brought in a lot of talent both in the marketing side on their patient service side and we're really encouraged by what's happening in that business and even what we're going to see growth wise over the next couple of quarters like I can't emphasize that enough.

[Andrew D'Silva:]

Okay, that makes sense and I heard you just referenced acquisition cost being recouped in about three to four months and doubling over in five year timeframe, so we look at sales and marketing expense for example in the fourth quarter, is that kind of the base that you're taking that off of or is it more segmented or nuanced as far as the proportion of that sales and marketing that you're attributing to consumer acquisition costs that would be recouped into that kind of the timeframe?

[Justin Schreiber:]

Yes, it's taken off of that metric at the end of the day, the sales and marketing expense that we're spending is obviously driven that acquisition and I'd actually expect the return on investment that we spoke about the potential to increase over time predominantly due to the fact that we're launching, we’re obviously converting mostly to subscription revenue which was something that wasn't present last year and then secondly as we start to look at LifeMD rolling out this concierge model and we have greater ability to sell brand to upsell and to retain people through a combo service product offering, we should actually see that return on investment improving more in the future on those advertising dollars goes further.

[Andrew D'Silva:]

Okay, great. And just last question for me as it relates to PDFSimpli, could you discuss the cadence there that segment actually seems to be growing faster than we were at modeling, I’m just curious how much of say the first quarters $17 million expectation, we should kind of earmark this PDFSimpli?

[Justin Schreiber:]

It’s very consistent with what you're saying in the fourth quarter, at the end of the day it is continuing to grow by very high double-digits, very low triple digit sufficed to say it's lower than the growth rate of the significant triple digits that we're seeing in telehealth. But we can think about it relatively similarly, how you would think about the fourth quarter, maybe very similar.

[Operator:]

And at this time, this concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Schreiber. Please go ahead.

[Justin Schreiber:]

Thanks, everyone for joining us on our call today and all the great questions. I'd like to give special thanks to our new shareholders who have recently invested in us and the new analysts who begun to follow LifeMD. We very much appreciate your support and participation in our amazing journey. Many more exciting things to come that's for sure, which we look forward to reporting on our Q1 call, which is coming up soon. Meanwhile, be well and stay healthy. Christy, let's go ahead and wrap-up the call.

[Operator:]

Thank you. Before we conclude today's call, I would like to provide the company's safe harbor statements that include important questions 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 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 dial-in 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.