LifeMD, Inc.

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 Mark Benetton, Chief Financial Officer of LifeMD. Following management's prepared remarks, we'll 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 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.

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 caseload 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 is demonstrated 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 healthcare 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, deleted 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 Work Simply subsidiary while enhancing and diversifying its workplace services platform. Under the leadership of its co-founder and CEO, Sean Fitzpatrick, Work Simply 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 to $55 million and EBITDA of 15 to 20 million, with the potential for continued growth. In 2022, WorkSimply 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 WorkSimply. We believe that WorkSimply 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 an 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 enable us to invest in the continued profitable growth of our business. With that, I will now turn the call over to our CFO, Mark Benison, who will provide a summary of the financial results. Mark.

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 a loss of $8.2 million. Additionally, as was released in full year 2023 guidance earlier today, We expect revenue growth for approximately 20 to 25% with adjusted EBITDA growing to between 12 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 upon a significant debt financing with Avenue Capital to provide what we believe to be more than ample long-term capital to LifeMD and significantly bolster 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 Work Simply asset, which we believe will continue to be accretive to future shareholder value. Now turning to results for the fourth quarter of 2022. 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. 94% 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. WorkSimply 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 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 prior year to end the quarter with over 169,000 active subscribers, and so our blended CACs declined by 18% versus the same year-ago period. Work Simply subscriber count increased by 64% first prior year to 168,000. Gross margins for the fourth quarter reached 86%, up 600 basis points first 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 a year-ago period. Operating expenses included $6.7 million of non-cash expenses associated with stock-based compensation, intangibles 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 timeframe allotted. Importantly, the earn-out liability has now been removed from the purchase consideration. In the fourth quarter of 2022, we also reduced our marketing expenses, a percentage of revenue, to 62% versus 77% of revenue in the same year-ago period. Our gap 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 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 the gain of $0.02 per share as compared to a loss of $0.27 per share in the same year-ago period. Adjusted EBITDA non-GAAP financial measure excluding the same account categories as noted in adjusted EPS totaled the 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 of 2022. Revenue for the full year of 2022 totaled $119 million, up 28% as compared to 2021. Telehealth net revenues grew by 21%, $82.6 million. WorkSimply net revenues grew 47% to $36.4 million. Gross margins for the full year reached 84%, up 300 basis points versus 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 $229 per share in 2021. Adjusted EPS, a non-GAAP financial measure that excludes non-cash expenses, preferred stock dividends, litigation expense, and foreign currency translation totaled the loss of 47 cents 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 the 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 total 4 million as of december 31st 2022 subsequent to 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.

Thanks, Mark.

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 2022. 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've 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 us. 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 healthcare.

With that, we would like to open the call for Q&A.

Thank you. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And our first question comes from the line of David Larson with BTIG. Please proceed with your question.

Hi. 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, almost flat sequentially. Just any more color there would be great. Thank you.

This is Mark. A couple of things on that. One, Uh, as we've talked about in the last couple of calls, uh, the fourth quarter is really where we finished out reallocating a lot of our spend and pruning certain areas that were not as profitable. And then number two, uh, 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, uh, slightly, uh, underinvested on, uh, marketing investment and, uh, you know, 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, you know, tracking to obviously return back to double-digit growth rates starting in the first quarter.

So for the revenue guidance for 2023, what is the split between healthcare and software? Yeah.

Yeah, so healthcare is roughly around $100 million, and the balance is roughly in the software arena. So we're looking at the Work Simply business as being around the $45-$50 million mark, and then the healthcare business being around $100-$105 million.

Okay, so a good sort of go-forward steady growth rate for the healthcare business would be 15% to 20%. Is that correct?

Yeah, I'd say probably 20% plus. One of the things you have to remember is that some of the growth in the healthcare 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 on that business pretty quickly. We see a lot more opportunity in that business, but, uh, given the nature of that business, uh, you know, less revenue per month and say, uh, some of the higher average order value businesses like the product business, but with very high retention, um, it takes a little bit more time, uh, for those initial dollars to produce the same amount of revenue. So, uh, I think long-term growth rate, telehealth is 20% plus, um, because you're going to start to see more traction coming from primary care and some of these newer offerings will take a little bit of time to build up.

Okay. And then at 4Q23, what sort of EBITDA margin would you expect on the software business and then also on the healthcare business?

I think it's a little bit early for us to give that. I mean, we have it obviously embedded in the guidance but you know both of the businesses will be profitable by obviously work simply is profitable right now both of them will be profitable by the middle of the year i'm happy to provide that a little bit as we move throughout the year but i think it's a little bit premature to provide that okay and then for the 40 million credit facility how much of that do you have access to right now and is there any are there any stipulations

For example, you have to be at a certain EBITDA level in order to gain $20 million. Are there any contingencies or anything like that? No.

We already funded $15 million of it at closing. The other five that is committed, there's no contingency as long as you're in compliance with the agreement. There's no EBITDA-related covenant in the agreement, so we don't have to be at a certain level of access there. We just have to be and general compliance. And the reason that, you know, 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. So the side for us, the additional 20 million upsizing, you know, 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.

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?

Yeah. Yes. And today we actually on our updated corporate presentation, it just went up to the website. We illustrate with the 2023 cashflow. is going to look like for the year. And we have more than sufficient cushion based on our estimates for this year. And, you know, at that point, by the end of the year, we'd expect to have access to the additional 20. We're not factoring in and planning the business based on needing that, but we expect to obviously have access to it by the end of the year.

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.

Yeah, so FormSwift recently sold to Dropbox for $95 million in all cash. That's public information. You know, the multiples that we've been hearing have typically been, you know, 2x plus, 2 to 3x has typically been with the biggest factors being the economic profile, the size of the company, any differentiation that they have, as well as what their subscriber base looks like. Those have typically been, and Formsworth is probably the most recent transaction that is, we think, relevant. But we also think there's a lot more value to be had in the Work Simply business. They continue to differentiate more and more, frankly, their financial profile continues to outstrip our expectations.

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 like the revenue cycle process for billing plans for virtual care, it's not a simple thing. Just any, any color there would be very helpful. Thanks.

Sure, David. We're working with three excellent partners. One, two, kind of on the billing and revenue cycle management side of things. Another on the compliance side and licensing side of things and contracting. So I feel really good about, you know, we're not going to certainly initially, right, we're not going to try to do all of this internally. And the providers that we're working with, the consultant firms we're working with on the billing side work with, you know, several other very large companies in the virtual care space that are already working with Medicare and with private payers. And so they have a lot of experience doing this and, you know, really confident that we'll be able to do a great job and get this live by the summer. David, we're going to be starting it. We're going to be initially focusing on contracting with the top plans in the top 10 states where our patient volume currently is. Based on the guidance we've been given from these companies, it's it should be a three to four month process to get everything in place.

Okay. And then just how do you see your payer mix trending by let's, let's call it like four Q of fiscal 24. Would you still expect like 80% of the healthcare business to be cash pay? Or do you think there's going to be a material shift where, you know, I have no idea.

I mean, I think it's, I think it's, I think I don't think there's any way that I can approximate that. I can give you a data point that might be helpful. Today, 30-plus percent of patients that come to our website but ultimately don't pay cash for a visit with one of our providers tell us in surveys that their reason for not following through with LifeMD or the reason for not purchasing from us was because they wanted to use their insurance. So, you know, what percentage of those other individuals are going to opt to pay cash versus using their insurance? I don't know. I really don't know the number. If I had to guess, I would say year-out it could be 50% of the business would be people using their insurance card and paying a copay, and 50% would be people paying cash that are on a high-deductible health plan or uninsured.

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.

Yeah, we're in, I would characterize them as late stage conversations with multiple, you know, multi-billion dollar national organizations. regarding various types of partnerships that rely on our virtual primary care platform. I believe these things have taken a lot longer than we expected them to take, but I can report that the pipeline currently is stronger than it's ever been. We have more interest than we've ever had. The company, especially with the financing that we completed this week is now, you know, has a very strong balance sheet and is just really well positioned, right, I think, to execute on some of these things. And it's tough to say what, you know, how successful they're going to be because especially when you're working with these larger companies, a lot of these things are pilots initially. I think we'll be able to talk about the pilot programs. They'll be very visible when we launch them. But if they're successful, they would be transformational for our company. and it's not one there's quite a number of them some of them are with national retailers some of them are with some of the largest healthcare product and pharma companies in the world you know i've been this is something that as you know i've been talking to our shareholders about these calls for a while so um tough to tell whether they're gonna we're gonna be able to announce some of these things in the coming weeks or it's gonna take another couple months but We built our platform to be a partner to these companies and to these organizations. And what I can report is that, you know, we're seeing more interest and more traction in the biz dev pipeline than ever. And I remain confident that, you know, over the long run that we're going to get some of these things done and hopefully, you know, eventually a lot of them done.

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?

Yeah, I think a lot of large retailers could look at virtual primary care as another product that they could monetize through their retail locations. That's a very Kind of simple way to look at it. And a lot of pharma and healthcare product companies, most of them, they're being forced to spend more and more money on digital solutions as part of their commercialization effort. It's a $10 billion a year number. It's growing. And there aren't a lot of... There's still... Although there are a lot of telehealth companies, there aren't a lot of telehealth companies with the technology platform and the medical group and all of the expertise on the adherence and engagement side that LifeMD has. We also have Alex Murano, our president, leads this side of the business, and he has a lot of great relationships and people really respect him. And so super confident that we're going to get couple of these things done this year, hopefully much sooner than this year. And from there, we'll be able to build a good business here over the next couple of years. But it's still a lot of opportunity.

Okay, I'll hop back in the queue.

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.