LifeMD, Inc. (NASDAQ:LFMD) Q1 2024 Earnings Call Transcript May 8, 2024
LifeMD, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon. Thank you for joining us today to discuss LifeMD’s Results for the First Quarter ended March 31st, 2024. Joining on 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 in the company’s 10-K and 10-Q filings and within other filings that LifeMD 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 8th, 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 certain non-GAAP financial measures that the company believes are important in evaluating LifeMD’s performance. Details on the relationship between these non-GAAP measures to 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 will be available for replay in the Investor Relations section of the company’s website.
Now, I’d like to turn the call over to LifeMD’s 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.lifemd.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 first quarter 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, WorkSimpli 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; two, new launches on RexMD. Three, the launch of private and government insurance options; and four, 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 200,00 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 up-ticks in the approval rates for GLP-1 payer coverage from the prior authorizations we file. Currently we see approval rates of 40% to 50% on Wegovy and Zepbound 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 LifeMD. Medifast OPTAVIA Coaches are now able to work with LifeMD 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 LifeMD 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 LifeMD has 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&D 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&D 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. Rex&D patients typically have ample disposable income, are typically over the age of 40 and they know and trust Rex 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 Rex&D business and in turn the LifeMD 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 four 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 LifeMD, 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, 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 who will provide a summary of our financial results. Marc?
Marc Benathen: Thank you, Justin and good afternoon everyone. LifeMD 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 WorkSimpli 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. WorkSimpli, 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 D2C telehealth business. Telehealth subscriber growth remains strong with the number of active subscribers increasing 31% year-over-year to approximately 235,000 while WorkSimpli active subscribers contracted 4% to over 166,000. As I mentioned WorkSimpli subscribers did return to growth late in the quarter and ended the first quarter with an increase of 8000 subscribers compared to the fourth quarter of 2023. Importantly with this return to growth, we expect WorkSimpli 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, stocks and insurance acceptance readiness, litigation expense, non-controlling interest, 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, totaled $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 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. As I’ve always said on these calls, I remain very optimistic and excited about the future of LifeMD. 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 drives 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?
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