Earnings Call
LifeMD, Inc. (LFMD)
Earnings Call Transcript - LFMD Q4 2022
Operator, Operator
Good afternoon. Thank you for joining us today to discuss the results for LifeMD's Fourth Quarter and Full Year ended December 31, 2022. Joining the call today are Justin Schreiber, Chairman and Chief Executive Officer; and Marc Benathen, Chief Financial Officer of LifeMD. 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 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, March 22, 2023. 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 the 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, CEO
Thank you, and good afternoon, everyone. Today, after the market closed, we issued a press release detailing our fourth quarter and full year results and uploaded an updated corporate presentation. The slides focused on our 2022 financial performance are also hyperlinked in our earnings release and on the Investor Relations page of our website. I'm pleased to announce that 2022 was a pivotal year for LifeMD, one in which we successfully pivoted from being a high-growth provider of telemedicine products into a diversified provider of differentiated telehealth services and products. I'd like to highlight several key initiatives we executed upon in 2022 that I believe best define our accomplishments and where LifeMD is heading. I'll start by saying, we're pleased to report that LifeMD achieved consolidated adjusted EBITDA profitability in the fourth quarter of 2022, in line with the guidance we provided over the past year. This achievement represents a crucial inflection point for our company and is demonstrative of the quality of our products and services as well as our commitment to financial discipline. We are now well positioned to deliver strong double-digit top line growth with meaningful profitability in 2023 and beyond. While we temporarily experienced a slowdown in telehealth growth in the second half of 2022, consistent with our guidance, we have successfully realigned our marketing, product and technology investment to support ongoing growth in the most profitable areas of our company. As reflected in the 2023 guidance we released earlier today, we expect this effort to produce top line growth of 20% to 25% in 2023 along with meaningful adjusted EBITDA profitability and the elimination of our cash burn by mid-2023. Second, last year, we launched our namesake brand, LifeMD, which provides virtual primary care services. Our early results have been outstanding. Despite launching in mid-2022 with minimal early investment, we ended 2022 with approximately 7,000 VPC patients ahead of our previous guidance. We attribute this success to our proprietary telehealth platform and affiliated medical group, which I believe are our two most valuable assets. Our technology platform has robust capabilities that span virtual care, pharmacy and marketing, thanks to the integration of features like a clinician-centric electronic medical record system, proprietary algorithms for case load balancing and scheduling, CRM functionality, lab testing, digital prescription capabilities, patient provider audio-video interfacing, cloud pharmacy fulfillment and more. Our platform allows us to provide nuanced treatment offerings and complex care journeys to deliver the highest level of care to our patients as evidenced by the consistently high reviews and feedback we receive from our patients. The launch of our virtual primary care business has expanded our treatment options to cover hundreds of conditions, providing an invaluable gateway for us to engage with our patients and support their daily and long-term health care needs. Moving forward, we plan to continue to invest in and diversify treatment offerings on our virtual primary care platform and expand patient access by participating in Medicare and contracting with private payers. For 2023, we project that LifeMD's primary care revenue, or revenue from our virtual primary care business, will exceed $5 million compared to just over $500,000 in 2022. Third, in 2022, LifeMD launched its enterprise telehealth offerings, which support pharmaceutical, medical device and diagnostic companies seeking to enhance the commercialization of their products. According to IQVIA, the U.S. life sciences industry spends approximately $10 billion per year on digital solutions in this area. LifeMD offers an attractive, affordable and differentiated solution. By leveraging our proprietary technology platform, integrated medical group, established brands, pharmacy partnerships and patient support infrastructure, LifeMD offers a comprehensive and flexible infrastructure, making us an ideal telehealth partner for these companies. This infrastructure reaches a broader audience while helping with patient adherence and outcomes, all while enhancing the long-term revenue streams of our partners. So far, during the past two quarters, new partnerships have formed and begun to grow, leaving us quite optimistic about future prospects for expanding these new offerings with existing and new partners in 2023 and beyond. We are also in active dialogue with a variety of other national organizations that are seeking to partner with a leading telehealth platform like LifeMD. We are excited about the immediate and long-term value creation and growth opportunity presented by these prospective partnerships. Fourth, we continue to scale our WorkSimpli subsidiary while enhancing and diversifying its workplace services platform. Under the leadership of its co-founder and CEO, Sean Fitzpatrick, WorkSimpli exceeded our expectations and generated approximately $36 million in revenue and $5 million in EBITDA in 2022. We anticipate that these numbers will increase significantly in 2023 with projected revenue of $50 million to $55 million and EBITDA of $15 million to $20 million, with the potential for continued growth. In 2022, WorkSimpli made several important strides towards diversifying its business from a single product PDF platform into a multifaceted workplace and document services platform, offering PDF, resume, proprietary forms and digital signature solutions. Looking ahead to 2023, the business plans to further differentiate and expand its consumer and small business offerings. Despite receiving numerous offers to buy the business, LifeMD voluntarily decided to retain its majority ownership position in WorkSimpli. We believe that WorkSimpli is at an important inflection point and that this decision will be materially accretive to future shareholder value. Finally, during the latter half of 2022, LifeMD executed several important initiatives to further strengthen the company's long-term liquidity and capital position. These initiatives include significantly reducing our cash burn and successfully closing a credit facility with Avenue Capital that provided us with additional capacity up to $40 million. LifeMD is on a pathway to eliminate its cash burn by the middle of 2023. And I believe our actions have positioned the company for long-term success and enabled us to invest in the continued profitable growth of our business. With that, I will now turn the call over to our CFO, Marc Benathen, who will provide a summary of the financial results.
Marc Benathen, CFO
Thank you, Justin, and good afternoon, everyone. Consistent with our guidance for the past year, LifeMD delivered adjusted EBITDA profitability of $631,000 in the fourth quarter of 2022, marking the first quarterly adjusted EBITDA profit for LifeMD. This was a particularly remarkable achievement in the evolution of our company when you consider that in the same year-ago period, our adjusted EBITDA loss was $8.2 million. Additionally, as was released in the full year 2023 guidance earlier today, we expect revenue growth of approximately 20% to 25% with adjusted EBITDA growing to between $12 million and $18 million for the year. We believe this reflects the remarkable financial progress we have made and will continue to make. When you consider we had adjusted EBITDA losses of $15 million and $38 million in 2022 and 2021, respectively. At the same time, we recently executed a significant debt financing with Avenue Capital to provide what we believe to be more than ample long-term capital to LifeMD, significantly bolstering our current balance sheet. As we illustrated in our updated corporate presentation made available earlier today on ir.lifemd.com, we believe this enhanced liquidity, coupled with a minimal near-term cash burn, which we expect to be eliminated by mid-'23, puts LifeMD in a very strong financial position to execute our long-term growth plans while also allowing us to voluntarily retain the WorkSimpli asset, which we believe will continue to be accretive to future shareholder value. Now turning to results for the fourth quarter of '22. Revenue in the fourth quarter totaled $28.1 million, up 3% as compared to the same year-ago quarter. Fourth quarter revenue was impacted by the non-cash impact of $2.9 million related to the deferral of telehealth order shipments. Ninety-four percent of total revenues in the fourth quarter were generated by recurring subscriptions. Telehealth net revenues declined by 20% to $16.4 million. However, excluding the impact of deferred order shipment revenue recognition, net revenues declined by 6%, mostly reflecting the company's refocus on advertising investment, targeting our most profitable segments with growth returning in 2023 off a more meaningful profitable base. WorkSimpli continued to execute extremely strongly against the plan we put in place early last year and delivered net revenues of $11.7 million, an increase of 71% versus the prior year while generating an EBITDA margin exceeding 15% for the quarter. On the telehealth side of the business, we increased our active subscriber base by 22% versus the prior year to end the quarter with over 169,000 active subscribers and saw our blended CACs decline by 18% versus the same year-ago period. WorkSimpli subscriber count increased by 64% versus the prior year to $168,000. Gross margins for the fourth quarter reached 86%, up 600 basis points versus the prior year. Gross profit for the quarter totaled $24.1 million, an increase of 10% from the same year-ago period. Operating expenses for the fourth quarter totaled $34.4 million, a decrease of $1.1 million versus the year-ago period. Operating expenses included $6.7 million of non-cash expenses associated with stock-based compensation, intangible write-downs, depreciation and amortization expenses. The intangible write-down was related to LifeMD truing up the valuation of the cleared acquisition assets, which were originally valued assuming most earnouts were achieved in the time frame allotted. Importantly, the earnout liability has now been removed from the purchase consideration. In the fourth quarter of 2022, we also reduced our marketing expense as a percentage of revenue to 62% versus 77% of revenue in the same year-ago period. Our GAAP net loss attributable to common stockholders for the fourth quarter totaled $12.7 million or $0.40 per share. This compares to a net loss attributable to the common stockholders of $19 million or $0.62 per share in the fourth quarter of 2021. Adjusted EPS, a non-GAAP financial measure that excludes non-cash expenses, preferred stock dividends, litigation expense and foreign currency translation totaled a gain of $0.02 per share as compared to a loss of $0.27 per share in the same year-ago period. Adjusted EBITDA, a non-GAAP financial measure, excluding the same account categories as noted in adjusted EPS totaled a gain of $631,000 in the fourth quarter of 2022. This compares to an adjusted EBITDA loss of $8.2 million in the same year-ago quarter. Now turning to results for the full year 2022. Revenue for the full year 2022 totaled $119 million, up 28% as compared to 2021. Telehealth net revenues grew by 21% to $82.6 million WorkSimpli net revenues grew 47% to $36.4 million. Gross margins for the full year reached 84%, up 300 basis points versus the prior year. Gross profit for the year totaled $100.3 million, an increase of 34% from the prior year. Our GAAP net loss attributable to common stockholders for the full year totaled $46.8 million, or $1.57 per share. This compares to a net loss attributable to common stockholders of $61.8 million or $2.29 per share in 2021. Adjusted EPS, a non-GAAP financial measure that excludes noncash expenses, preferred stock dividends, litigation expense and foreign currency translation totaled a loss of $0.47 per share as compared to a loss of $1.42 per share in the same year-ago period. Adjusted EBITDA, a non-GAAP financial measure, excluding the same account categories as noted in adjusted EPS, totaled a loss of $14.7 million in 2022. This compares to an adjusted EBITDA loss of $38.3 million in 2021. Now turning to our balance sheet. Cash totaled $4 million as of December 31, 2022. Subsequent to the quarter end, we closed on credit facilities from Avenue Capital providing up to $40 million of total capital with $15 million funded at closing. As provided in our release earlier today, we have continued to reduce our cash burn and expect to eliminate it by the middle of 2023. This wraps up our financial results. I'd now like to turn the call back over to Justin.
Justin Schreiber, CEO
Thanks, Marc. In summary, 2022 was a pivotal year for LifeMD as we evolved from a singular-focused growth company in the telemedicine space to a diversified provider of telehealth services. We're proud to have demonstrated our ability to build LifeMD profitably with long-term sustainable growth, achieving adjusted EBITDA profitability in the fourth quarter of 2020. Looking ahead, we expect our profitability to continue to increase materially in 2023 and beyond with a rapid resumption of strong double-digit growth. We're also excited about the growth of our virtual primary care platform, our enterprise business and the new treatment areas we've expanded into in 2022, such as insomnia and weight management. The product that we built at LifeMD is amazing. If you are listening to this call or reading the transcript and you aren't yet convinced of this, go to lifemd.com and schedule a virtual visit with one of our providers. It will be a great experience. We also recently posted videos on the medical team page of our website with many of the full-time providers in our affiliated medical group. Spending a few minutes watching some of these videos will give you a pretty good idea of the quality of doctors and nurse practitioners that practice on our platform. I assure you, you'll be impressed. The opportunity for our brand is enormous. We are still in the early days of virtual care. I believe that over the next five to ten years, technology-driven virtual and in-home health care will fundamentally change how most Americans interact with their providers and manage their health. It is an enormous market opportunity, and LifeMD is positioned to be a long-term leader in this space. What's even better than the market opportunity is the positive impact our company's success and the success of our shareholders will have on millions of people's lives. If you are invested in LifeMD, you are invested in helping people across America reach incredible doctors that they desperately need and live longer, healthier and happier lives because of this. Before I close out, I want to take this opportunity to express my gratitude to all of our stakeholders. The Board of Directors of LifeMD and I appreciate your continued support of our company and our mission to improve access to incredible and affordable virtual health care. With that, we would like to open the call for Q&A.
Operator, Operator
And our first question comes from David Larsen with BTIG.
David Larsen, Analyst
Congratulations on getting to profitability. That's a great accomplishment. Can you maybe talk a little bit about the $28 million in revenue that was obviously a little bit lower than we were modeling. Even if you add back the $3 million, it still came in, I think, to almost flat sequentially. Just any more color there would be great.
Marc Benathen, CFO
Dave, this is Marc. A couple of things on that. One, as we've talked about in the last couple of calls, the fourth quarter is really where we finished out reallocating a lot of our spend in pruning certain areas that were not as profitable. And then number two, no secret to everyone we ran in Q4 prior to completing this financing with a fairly lean balance sheet. And I'd say overall, we're slightly underinvested in marketing investment and in general, both to our subscribers as well as to new patients, which also had an impact on the quarterly revenue. Those are all things that are behind us now, and we're tracking to obviously return back to double-digit growth rates starting in the first quarter.
David Larsen, Analyst
So for the revenue guidance for 2023, what is the split between health care and software?
Marc Benathen, CFO
Yes. So health care is roughly around $100 million, and the balance is roughly in the software arena. So we're looking at the WorkSimpli business as being around the $45 million to $50 million mark and then the health care business being around $100 million to $105 million.
David Larsen, Analyst
Okay. So a good sort of go-forward steady growth rate for the health care business would be 15% to 20%. Is that correct?
Marc Benathen, CFO
Yes, I'd say probably 20% plus. One of the things you have to remember is that some of the growth in the health care business is backloaded in the year as we continue to build the virtual primary care business. I think we've shown that we've been able to get a lot of scale in that business pretty quickly. We see a lot more opportunity in that business. But given the nature of that business as less revenue per month than, say, some of the higher average order value businesses like the product business, but with very high retention, it takes a little bit more time for those initial dollars to produce the same amount of revenue. So I think the long-term growth rate for telehealth is 20% plus because you're going to start to see more traction coming from primary care and some of these newer offerings that will take a little bit of time to build up.
David Larsen, Analyst
Okay. And then at 4Q '23, what sort of EBITDA margin would you expect on the software business and then also on the health care business?
Marc Benathen, CFO
I think it's a bit too early for us to provide that information. We have it included in the guidance, but both businesses will be profitable. WorkSimpli is currently profitable, and I expect both to be profitable by the middle of the year. I can share more details as the year progresses, but it feels premature to offer specifics right now.
David Larsen, Analyst
How much of the $40 million credit facility can you access at this time? Are there any conditions, such as needing to meet a specific EBITDA level to access $20 million? Are there any contingencies associated with it?
Marc Benathen, CFO
No. So we already funded $15 million of it at closing deal. The other $5 million that is committed, there is no contingency as long as you're in compliance with the agreement. There's an EBITDA-related covenant in the agreement. So we don't have to be at a certain level of access here. We just have to be, in general, compliant. And the reason that we didn't necessarily fund that right away. I mean it was excess capital, and we can obviously fund it later in the year, it's fully committed aside for us. The additional $20 million upsizing, in general, we have the ability to access that once the company reaches on a consolidated basis, approximately $150 million of TTM revenue, which obviously we expect to do around this year.
David Larsen, Analyst
Okay. Okay. So it sounds like you got to be at $150 million in revenue in order to access the second $20 million of that $40 million. Is that correct?
Marc Benathen, CFO
Yes. Yes. And today, we actually on our updated corporate presentation, it just went up to the website. We illustrated what the 2023 cash flow is going to look like for the year, and we have more than sufficient cushion based on our estimates for this year. And at that point, by the end of the year, we'd expect to have access to the additional $20 million. We're not factoring in and planning the business based on meeting that, but we expect to obviously have access to it by the end of the year.
David Larsen, Analyst
Okay. And then what sort of revenue multiples have these PDF-like software businesses sold for? I think there have been a few transactions announced in the case.
Marc Benathen, CFO
Yes. Form Swift recently sold to Dropbox for $95 million in cash, which is public information. The multiples we've observed are generally around 2 to 3 times, influenced by factors such as the economic profile, company size, any unique features they have, and their subscriber base. Form Swift is likely the most recent transaction that we consider relevant. However, we believe that there is significantly more value to be realized in the WorkSimpli business, which continues to differentiate itself and is surpassing our financial expectations.
David Larsen, Analyst
Okay. And then Justin, I think you talked a little bit about entering into deals with health plans and larger entities. Did I hear that correctly? And then, the revenue cycle process for billing plans for virtual care, it's not a simple thing. Just any color there would be very helpful.
Justin Schreiber, CEO
Sure, David. We're collaborating with three excellent partners. Two are focused on billing and revenue cycle management, while the third specializes in compliance, licensing, and contracting. I feel confident that we won't initially handle everything in-house. The consulting firms we're partnering with on the billing side have experience working with several large companies in the virtual care sector that already deal with Medicare and private payers. They bring a wealth of experience to the table, and we're optimistic about successfully launching this by the summer.
David Larsen, Analyst
And then...
Justin Schreiber, CEO
First of all, David, we're going to initially focus on contracting with the top plans in the top 10 states where our patient volume currently is. Based on the guidance we've received from these companies, it should take about 3 to 4 months to get everything in place.
David Larsen, Analyst
Okay. And then just how do you see your payer mix trending by, let's call it, like 4Q of fiscal '24? Would you still expect like 80% of the health care business to be cash pay? Or do you think there's going to be a material shift where...
Justin Schreiber, CEO
I really don't have a good estimate. However, I can share a relevant data point. Currently, over 30 percent of patients who visit our website but do not pay for a consultation with one of our providers indicate in surveys that their reason for not proceeding with LifeMD is their desire to use insurance. So I'm unsure of the percentage of others who will choose to pay cash instead of using insurance. If I had to guess, I would think that in a year, about 50 percent of our business might come from individuals using their insurance and paying a co-pay, while the other 50 percent could be cash payments from those on high deductible health plans or who are uninsured.
David Larsen, Analyst
Okay. And then just any sort of comments on these larger entities that you've been talking about? Would these be health plans or maybe a large retail chain, Walgreens, CVS, any color there would be helpful.
Justin Schreiber, CEO
We are currently in advanced discussions with several major national organizations about various partnership opportunities that utilize our virtual primary care platform. These discussions have taken longer than anticipated, but I can share that our pipeline is the strongest it has ever been. We have unprecedented interest in the company, particularly after the financing we completed this week, which has strengthened our balance sheet and positioned us effectively to pursue these opportunities. It's difficult to predict the level of success with these larger companies since many of these initiatives start as pilot programs. We'll be able to discuss these pilot programs publicly when we launch them, and if successful, they could be transformative for our company. There are multiple initiatives underway, including partnerships with national retailers and some of the world's largest healthcare and pharmaceutical companies. This is a topic I've been addressing with our shareholders for some time. It’s hard to determine whether we will announce specific developments in the coming weeks or if it will take longer. However, we have designed our platform to serve as a partner to these organizations, and I can confidently state that we are experiencing more interest and growth in our business development pipeline than ever before. I remain optimistic that we will successfully finalize many of these initiatives in the long run.
David Larsen, Analyst
Okay. And then just one quick follow-up there. So you could become the virtual primary care vendor or entity sort of white-labeled for a large retailer? Is that the idea or something along those lines?
Justin Schreiber, CEO
I believe many large retailers may view virtual primary care as an additional service they can monetize at their retail locations. Additionally, numerous pharmaceutical and healthcare product companies are increasingly required to invest in digital solutions as part of their commercialization strategies, which amounts to about $10 billion annually and is on the rise. While there are many telehealth companies, few possess the technology platform, medical group, and expertise in adherence and engagement that LifeMD offers. Additionally, our President, Alex Mironov, leads this area of the business and has established excellent relationships and is highly regarded in the industry. I am very confident that we will accomplish a few of these initiatives this year, hopefully even sooner than expected. From that point, we can develop a solid business over the next few years, with plenty of opportunities still available.
Operator, Operator
And with that, we have reached the end of the question-and-answer session. And also this concludes today's conference. And you may disconnect your lines at this time. Thank you for your participation.