Transcript
Good afternoon. Thank you for joining us today to discuss the results for LifeMD's Second Quarter of 2021 Ended June 30, 2021. Joining the call today are Justin Schreiber, Chairman and Chief Executive Officer and Marc Benathen, Company's Chief Financial Officer of LifeMD. Following management's prepared remarks, we will open the call for a question and answer session. 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 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 the company's 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 makes 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. 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 to evaluating LifeMD's performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliations 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 CEO Justin Schreiber. Please go ahead.
Thank you, operator, and good afternoon, everyone. Thank you for joining us today to discuss our second quarter 2021 results. Our strong top-line performance continued this quarter, building on the incredible momentum we saw from the start of this fiscal year. Even with pandemic restrictions being largely lifted, we continue to see record demand for our telehealth products and services. Telehealth orders were up 155% over the same quarter last year. Our subscription-based patient customer numbers also continued to grow, with a record 93% of revenue being generated by recurring subscriptions. Patient retention across all brands remained at record levels. All of this added up to LifeMD producing record revenues of $22.3 million, up 145% from the year-ago period. Perhaps most impressive was that despite a significant 20% increase in media rates across our core digital channels, our acquisition team was able to drive an 8% sequential decrease in customer acquisition costs. This optimization allowed us to double down on our discretionary marketing investment to drive an 11% sequential increase in new patient acquisitions per day in comparable brands and further increase our market share. During the quarter, we also began marketing our newest tele-dermatology brand Nava MD. Early results have been promising with a strong reception from patients. Nava MD's customer acquisition costs have so far been extremely favorable, with an estimated payback on investment of two to four months. As we've said previously, we believe that Nava MD will be a very meaningful top-line and profitable contributor over the long term. Organizationally, we made several important key strategic hires, especially with our new president Alex Mironov. Alex brings to us over 20 years of experience in business development, mergers and acquisitions, and corporate strategy, as well as extensive experience in the pharmaceutical industry. This includes leading transactions in the pharma space totaling over $5 billion. His expertise will allow us to broaden and deepen our telehealth brands and product offerings in areas where we believe we can continue to disrupt and demonstrate our industry leadership in the direct-to-consumer healthcare market. We continue to place a strong emphasis on our digital health technology platform, which enables a robust patient care process that provides unlimited expandability across a multitude of indications and healthcare services. To highlight this expandability, we recently announced three exciting partnerships that will enable us to augment our upcoming launch of the LifeMD primary care platform. These transformational partnerships include a world-class provider of laboratory services and a leading provider of at-home diagnostic services. In combination, these new partners will provide patients of our telehealth platform access to over 150 commonly ordered laboratory tests, a wide range of in-home diagnostic services, and access to over 2,000 National Laboratory locations all at preferred pricing. Next, we also announced a partnership with Particle Health, the leading provider of HIPAA-compliant electronic medical records data that will transform the way our affiliated medical providers and their patients access and utilize real-time medical data to personalize their care. All these partnerships have positioned us very well for the launch of our primary care platform LifeMD this fall, which we expect to rapidly disrupt the primary care market. In summary, we had a great second quarter marked by the successful launch of the Nava MD brand, tremendous performance of our acquisition marketing platform, elevation of our technology infrastructure, and the consummation of several differentiating partnerships. Looking ahead, we're more confident than ever in our ability to be a market leader in the direct-to-patient telehealth industry.
Thank you, Justin, and good afternoon, everyone. As Justin mentioned, during the quarter, we continued to execute with strong top-line and operational performance. We grew our offerings, expanded our existing brands, launched new business lines and capabilities, and improved efficiencies all while maintaining a high level of service. A key factor driving our strong performance this quarter was how we were able to drive improved unit economics by further optimizing our media strategy to drive an 8% sequential decrease in our customer acquisition costs. This was a remarkable achievement given that at the same time, digital media rates across our channels increased by more than 20%. Adjusting for this sizable rate increase, our team was able to drive an approximate 30% improvement in our media efficiency on a sequential basis while also acquiring new patient customers at a per-day rate that was 11% higher than the previous quarter. Leveraging this performance and our strong unit economics which pay back in two to four months, we made the conscious decision to efficiently increase our total discretionary acquisition marketing spend during the quarter to capture market share. Taking a closer look at our results, revenue in the second quarter of 2021 totaled a record $22.3 million, up 145% compared to the same quarter a year ago, and up 23% sequentially. This was largely recurring revenue, with 93% of our revenue generated by recurring subscriptions in the second quarter of 2021, which was just 56% in the same year-ago period. Our retention on these new subscribers remains very strong. In fact, 60% of our revenue this quarter came from billings of already existing subscribers, as compared to just 22% of our revenue in the same year-ago quarter. Telehealth net revenues grew over 100% to $15.8 million. Our legal subsidiaries contributed net revenue of $6.5 million, up 434% from the year-ago quarter. Telehealth order volume grew 155% versus the year-ago period to 199,674 orders. Following this continued excellent performance, we are reiterating our previously raised full-year 2021 revenue guidance of $90 million to $100 million, reflecting annual growth in 2021 between 141% and 168% versus 2020. Gross profit in the second quarter increased by 145% to $18.1 million compared to $7.4 million in the same year-ago quarter. Gross profit as a percentage of revenue in the second quarter of 2021 was 81.2% compared to 81.4% in the same year-ago quarter. Starting this quarter, we commenced reporting platform contribution, a non-GAAP financial measure defined as GAAP operating loss before general administrative expenses excluding payment processing fees, selling and marketing expenses, and other operating expenses. We consider platform contribution to be an important non-GAAP financial measure which monitors our performance based on the direct costs of delivering the products and services we sell across our brands. We believe platform contribution is useful to measure how we are controlling our direct variable costs, and how effectively we retain our providers, patients, and customer subscribers. Additionally, platform contribution is a good leading indicator of profitability for our company. Platform contribution in the second quarter totaled $16.5 million compared to $6.7 million in the same year-ago quarter, an increase of 145%. Now turning to operating expenses, operating expenses in the second quarter of 2021 were $34.2 million, up from $10.6 million in the same year-ago quarter. The increase was primarily due to increases in discretionary growth, selling and marketing expenses of $14 million, general and administrative expenses of $8.6 million, other operating expenses of $715,000, and customer service expenses of $384,000. Development costs decreased by $47,000. G&A expenses for the second quarter of 2021 also included non-cash expenses for stock-based compensation and amortization expenses of $3.3 million. The increase in operating expenses compared to the year-ago period was associated with investments made to scale our infrastructure to support a rapidly growing diversified telehealth business offering treatment for a range of chronic conditions and primary care. We expect to leverage these investments starting in 2022 and gradually reduce quarterly EBITDA losses in 2022 as we scale the business to EBITDA breakeven by the end of 2022. Our GAAP net loss attributable to common stockholders for the second quarter totaled $16.8 million or $0.64 per share. This compares to a net loss attributable to common stockholders of $3.4 million or $0.27 per share in the second quarter of 2020. Adjusted EPS is a non-GAAP measure that excludes $2.5 million in non-cash stock-based compensation expense and $946,000 of non-recurring financing transaction expenses. This figure totaled a loss of $0.51 per share for the second quarter, compared to a loss of $0.24 in the same year-ago period. Adjusted EBITDA, a non-GAAP financial measure which factors out non-cash stock-based compensation, depreciation and amortization expenses, financing transaction expenses, litigation costs, and interest expenses, totaled a loss of $12 million in the second quarter of 2021. This compares to an adjusted EBITDA loss of $2.1 million in the same year-ago quarter. Now turning to our balance sheet, cash totaled $17.4 million as of June 30, 2021, compared to $9.2 million as of December 31, 2020. As we continue to scale and invest in the rapid expansion of our business with strong unit economics, we remain focused on building our balance sheet with the interests of shareholders in mind. To this end, we expect to complete an additional non- or minimally dilutive capital raising this year to further strengthen our balance sheet. This wraps up our financial results. I'd now like to turn the call back over to Justin.
Thanks, Marc. Overall, it was a tremendous second quarter. The elevation of infrastructure with the appointment of an exceptional president, consummated three transformational partnerships immediately after the quarter-end, drove outstanding acquisition marketing performance despite significant cost headwinds in the media market, launched Nava MD, and laid the foundation for what we expect to be a very successful upcoming launch of our primary care platform LifeMD. The strong performance in the second quarter has carried into the current quarter; we're continuing to see very strong demand for our products and services. Just recently, we set our new single-day record for new patient acquisitions. In closing, our numbers speak for themselves, and with each passing day, our vision of disrupting healthcare by building the leading telehealth business is coming to fruition. Our continued growth will depend on the strength of our team, technology, and operations to support our immense vision and efforts. We have strengthened our foundations significantly in the last quarter, setting up the continued growth of our existing businesses and the launch of new brands and offerings, such as our primary care platform, while remaining on track to reach profitability by the end of 2022 barring significant investments in new brands or verticals. We still have a lot of things to accomplish in healthcare, and we remain focused on continuing to build our position as a leader in direct and patient telehealth. We'll do this by delivering unparalleled care through our affiliated providers as we continue to disrupt traditional healthcare. So thanks again to our providers and their patients, our team, and our shareholders; it wouldn't be possible to do what we do without everyone's support. With that, I would like to open the call for Q&A.
And we'll go first to Andrew D'Silva of B. Riley Securities.
Alright, good afternoon. Thanks for taking my questions and really, congrats on all the progress. A few quick ones for me. First, just given the vaccination progress and the loosening of restrictions during the second quarter. Can you talk about retention and what you saw from a stickiness standpoint? And is it fair to assume those trends are holding true into summer?
Yeah, thanks, Andy. I can tell you that in the second quarter, retention was comparable to what it was in the first quarter and continued to remain very high across all prescription products. Within the first billing cycle, we continue to see 75% to 80% retention within those first three to four months after the person becomes an initial patient, and then continued strong unit economics with the payback within the first call in two to four months and then 2x return in the first year. So the pandemic restrictions loosening have really had no impact on our business. In fact, we are actually seeing improvement in retention thus far as we've started the third quarter. So, you know, from a new acquisition standpoint and a retention standpoint, it's actually been performing at record levels post a lot of restrictions being lifted.
That's really interesting. And moving over to some strategic initiatives that you brought on Alex, who's clearly driving a lot of what's going on. I'm curious how that pipeline looks and what kinds of opportunities should we be thinking about going forward or where the business can be administered better? And with the recent diagnostic partnership, I was curious if that positions you to introduce things like testosterone replacement therapy.
Yeah, Andy, this is Justin. With regards to the development pipeline, Alex has done an exceptional job in the first 90 days. Definitely, you know, I think that what we expected was right on; I think he's exceeded our expectations. I would estimate that we have at least 10 potential partnerships with pharmaceutical companies that are in the pipeline, some more promising than others, but a lot of very exciting stuff there, especially considering Alex is only 90 days in. And then your second question, I'm sorry, I kind of missed it. It kind of broke up.
Yeah, as far as the diagnostic partnerships go, does that position you to be able to provide testosterone replacement therapy across the platform?
It could be used for an offering like testosterone replacement therapy. You know, we've stayed away from controlled substances, and going into the testosterone space and testosterone replacement therapies is not something that's on the near-term radar screen. But, certainly, the relationship with Quest and actual health, first and foremost for our virtual primary care offering, is essential. We were able to have very preferential cash pay pricing on 150 very common tests where our patients can walk into any Quest location across the country, and no one will avoid the diagnostic lab test because of the cost, I can assure you that. So that's really exciting for us. And then, secondly, actual health gives us the ability to send a phlebotomist to the patient's home to collect blood work if that's more convenient for them, and they don't mind paying an additional fee for that. So many of these condition-specific, indication-specific telehealth offerings will require lab work. You know, testosterone therapy is one example. So we look at this as a really important piece of the puzzle as we continue to diversify our portfolio of offerings.
Great color, thank you. Lastly for me, should we expect customer acquisition costs or CPAs to continue to improve? And how should we manage that thought process with overall sales and marketing spend? Can you also give a little context around the ad race environment currently and how we should think about that for the rest of the year? Seasonality credits would be useful.
Yeah, Mark. So CACs, we've obviously now made two quarters of sequential improvements. In the first quarter, we improved 15% to 20% by brand versus the prior quarter, and then this quarter, we improved another 8% sequentially against the first quarter. Our improvements would have been close to 25% to 30%, had the media market not seen rates that increased by more than 20%. So we're able to obviously more than offset that. I think going forward, there may be some longer-term heading into next year with improvements in CACs. In the shorter term, as we haven't seen, you know, Q3 and Q4, we certainly would expect CAC levels to be pretty comparable to where we've driven them today. We've actually driven them from very cost-effective and efficient levels. In fact, most companies in the second quarter experienced massive increases in their marketing and had to dial back on growth investments. On the other hand, what our approach has been, we've been able to significantly optimize our media. We believe that that's one of our strong suits, direct-to-consumer acquisition, and we redeployed capital and reinvested back into sales and marketing expenses in order to capture market share, which is only going to lead to more significant revenue growth in the future, and ultimately, profitability growth. How we should think about sales and marketing expense going forward is I would expect over the next couple of quarters to see sales and marketing as a percentage of revenue to be fairly comparable to where we are today, possibly a little bit better in the next one or two quarters. But the reality is, we have the ability to acquire new customers and patients at very efficient levels with quick paybacks. The market size that we're going after is approaching a $1 trillion, so there's a tremendous opportunity for us to leverage our strengths and capabilities. We have definitely seen companies that have had to pull back on their advertising spend, which long-term affects acquiring new patients and retaining those customers.
Thanks, Mark. Thanks for taking my questions. Good luck going forward and congrats on progress.
And our next question will come from an unnamed analyst of BTIG.
Good afternoon, guys. This is Mikael in for David Larsen. Thanks for all the clarifications and progress. Just a couple of questions on my side. Maybe we can start with Nava and sort of a launch. I know you mentioned the two to four month payback period. But maybe you can just better frame how the membership volumes have been looking there, how you're thinking about the overall market potential there, and sort of a sense of your margin profile for that business.
Yep, this is Marc. So now, in general, we launched aggressive marketing in the second quarter. We obviously launched the business in the first quarter but took a little bit of time to get some certification. So we started going to market around halfway through the second quarter. We saw strong patient perception, but what we've done is the initial traffic that we were running through that particular brand list in the first couple of months, we've relaxed that at this point, capped the amount of traffic, so we're seeking to acquire a certain amount of patients, we calculate a percentage of that per day, and every single day that we went to market, we could have easily exceeded those caps. But we wanted to obviously get a read on the rebuilds, which started to trickle in during July. What I can say is we've seen strong initial rebuild numbers coming out of the brand, very strong patient acquisition numbers, double-digit tax that were the lowest that we've seen across any brands in the portfolio, and tax that enabled our pharmacy to pay back in that three to four month timeframe. As far as going forward, this market has tremendous potential, it can be even larger than the telehealth market, which is already multi-hundred billion TAM. So, you know, we think looking ahead over the next 12 to 24 months that there's no reason that this business can't be along the lines of whatever business can be, possibly bigger, possibly a little smaller. But it's a little hard to say exactly what it will be other than we know that we have a brand that can be really big.
Got it. Thank you for that. And maybe just on your primary care solution launch this fall, if you can just maybe frame some of your membership growth potential there and how you're going to be really leveraging your partnerships with actual health and Particle Health as well to really grow that business and that differentiation. So, it would be helpful to get more context there.
Yeah, this is Justin. I'll comment on that. Anytime we launch something, we're going to be conservative out of the gate. The technology platform that we've built for LifeMD and our subscription-based primary care offering is incredible. It's the best technology we've ever built; it's first. We're launching iOS and Android mobile apps as well. And so we're intentionally going to onboard patients in a conservative manner. So I don't know whether that's 25 to 50 patients a day initially for the first month or two. But, you know, it's a little premature, I think, to give estimates on the growth. But I think what I'm okay saying is we're going to be conservative throughout the fall with putting patients on the platform. We have a lot of new affiliated providers that we've brought on board for our LifeMD offering, a lot of these new technology partnerships, the new technology of our own. So we're going to be conservative with it, but we're really excited to demonstrate this to the markets this year and show that this is scaling and we've onboarded a sufficient number of patients to really prove this out and hopefully we can show by the end of the year that this is going to be a very big business and a meaningful part of the LifeMD story moving forward.
Got it. And maybe just one last one, to kind of elaborate on some of the improvement in customer acquisition costs that you guys have been seeing over the last couple of quarters. You know, just your thoughts on that flowing into kind of the EBITDA margins and sort of starting to see greater improvement on that front. And, you know, maybe when you sort of expect that you might hit breakeven as well on that front.
Yeah, this is Marc. So, you know, as I've indicated on the call, we expect to be hitting EBITDA breakeven by the end of 2022 and starting to see some leverage improvements in 2022. As far as the CAC improvements flowing into EBITDA margin over the next one to two quarters, we do not expect to see improvements in EBITDA margin over the next quarter, with some slight improvements in the fourth quarter of this year. The reason for that is while we're able to improve CAC and significantly increase our efficiencies, I think we showed in the second quarter that we're able to do that and acquire more new customers that we retain very well, and earn terrific unit economics. So in the short term, we're going to reinvest and redeploy capital towards continuing to grow aggressively, and we think this will return over the long term. We're going to see much more significant growth if we started taking all of that to the bottom line now, and flowing through to an improved EBITDA margin in the short term at the expense of the next call of 12, 24, 36 months.
Thank you guys very much. Appreciate all the updates and congrats on all the progress.
And with that, everyone that does conclude today's question and answer session. I would like to turn things back to Justin Schreiber, CEO, for final comments.
No final comments; just thank you to everyone for participating in this call, appreciate everybody's support, and look forward to giving you even more positive updates next quarter.
And with that, everyone, that does conclude today's call. We'd like to thank you again for your participation. You may now disconnect.