HEWA - LifeMD: Behind The Lazarus-Like Move

2023-07-19 16:46:15 ET

Summary

• Shares of telehealth platform LifeMD, Inc. have cratered 85% from their all-time high of February 2021, as profitability had been elusive.
• That said, the company’s stock has more than tripled off its all-time low ($1.14) as it is poised to become cash flow positive.
• Trading at 0.85 times FY23E revenue that is projected to grow 22%, the recent insider buying merited a deeper dive.
• A full investment analysis follows in the paragraphs below.

Only after disaster can we be resurrected ."? Chuck Palahniuk, Fight Club.

Today, we look at a small healthcare related concern that seems in the middle of a Lazarus type of rebound after a massive selloff. The stock has seen some recent insider buying and the company is approaching cash flow breakeven status. An analysis follows below.

Company Overview:

LifeMD, Inc. (LFMD) is a New York City-based direct-to-patient telehealth platform that enables virtual primary and lifestyle healthcare, as well as the home delivery of prescription medications, devices, etc. As of March 31, 2023, the company had ~11,000 primary care patients on its platform, while facilitating a total of ~715,000 patient consultations since inception (2019). LifeMD was founded in 1987 as yeast beta glucan provider Immudyne, going public in 2008 on the OTC Pink Sheets with its first trade at $0.50 a share, after giving effect to a 1-for-5 reverse stock split in 2020. It migrated to the OTC Venture Market in 2013, transitioned to consumer products concern Conversion Labs in 2018, and began making significant investments in its telehealth platform in 2019. LifeMD graduated to the NASDAQ in December 2020 and changed to its current moniker in February 2021.

Shares of LFMD trade for around $3.75 a share, translating to a market cap of approximately $125 million

LifeMD Brands

The company's platform features five brands: LifeMD PC; RexMD; ShapiroMD; NavaMD; and Cleared.

LifeMD PC was launched in 1Q22 and provides 24/7 virtual primary care, urgent care, and chronic care (primarily through an app) that includes consultations, treatment, meds, diagnostics, wellness coaching, and more. Members get a prescription discount card that can be used in 60,000 pharmacies in the U.S. This is an area of focus for management. Currently a cash pay operation, LifeMD is expecting to onboard private payers and Medicare in 2023, which should significantly expand its market opportunity.

RexMD is a telehealth platform for men, with consultations covering erectile dysfunction, low testosterone, and hair loss, amongst others. After consultation with an online physician, partner pharmacies will dispense and ship meds directly to the patient's home - usually on a recurring basis. This brand has served 390,000 customers and patients since inception.

ShapiroMD operates similar to RexMD, although it provides consultation and distributes prescription meds and medical devices for male and female hair loss. Over 260,000 ShapiroMD consultations have occurred on the LifeMD platform.

NavaMD is a female-directed dermatology platform, typically treating acne or wrinkles.

Cleared is focused on allergies. In addition to consultations, it provides in-home tests and treatments for allergies and asthma, including FDA-approved immunotherapies. Acquired for $9.1 million in January 2022, its offerings include free consultations from a network of medical professionals in all 50 states, and discounted prescription meds.

The company has also recently introduced insomnia and weight management programs to its platform.

These offerings are supported by a 130-person call center in Greenville, SC. They will be further bolstered by a recent partnership with online pharmacy HealthWarehouse.com (HEWA), which will provide lead generation by sending patients looking for prescriptions on its website to a LifeMD affiliated provider for said prescriptions.

In addition to these brands, LifeMD made a seed investment in pdf document platform WorkSimpli in 2018 that has evolved into a 73.6% ownership interest. Unlike the telehealth offerings, which primarily generate revenue from recurring (subscription) product sales, WorkSimpli offers monthly and annual subscriptions for its suite of software services - available in 16 languages. With gross margins of ~98%, it is projected to generate FY23 Adj. EBITDA of ~$17.5 million on revenue of ~$50 million.

Operating and Share Price Performance

The telehealth offerings generated FY22 gross profit of $64.8 million on revenue of $82.6 million. WorkSimpli was responsible for FY22 gross profit of $35.6 million on revenue of $36.4 million. Despite the sizable gross margins, significant operating expenses resulted in LifeMD losing $0.47 a share (non-GAAP) in FY22, which was an improvement on a loss of $1.42 a share (non-GAAP) in FY21.

A beneficiary of the pandemic, the company's revenue surged 227% (293% telehealth) in 4Q20, but off an extremely small base of $3.9 million ($2.6 million) in 4Q19. Assuming this was the shape of things to come, the market shrugged off the company's large losses and bid the newly listed NASDAQ stock to $33.02 a share (intraday) on February 10, 2021 - from a $6.98 close on January 15, 2021 - representing what would be 9.2 times FY21 revenue. It took six months for shares of LFMD to round-trip back below $7, owing to its struggles with elevated operating expenses, which forced the company to onboard additional debt and dilute shareholders in FY21.

Management used FY22 as a "get right" year, focusing more on the bottom line. However, with little progress on that front during 1H22 (Adj. operating loss of $26.0 million versus a loss of $28.0 million in 1H21) and with revenue growth "slowing" to 54% during the same period, the slow death march in share price continued as the market washed itself of high-growth, no-profit concerns. Ignoring some signs of progress in its 3Q22 financial report, the selloff reached its nadir on March 20, 2023, with shares of LFMD trading to an intraday low of $1.14.

4Q22 Earnings & Outlook

It was at this point - specifically March 22, 2023 - the company released its 4Q22 financials, posting a gain of $0.02 a share (non-GAAP) and Adj. EBITDA of $631,000 on revenue of $28.1 million versus a loss of $0.27 a share (non-GAAP) and Adj. EBITDA of negative $8.2 million on revenue of $27.4 million, reflecting LifeMD's first ever profitable quarter from an Adj. EBITDA standpoint.

The tepid revenue growth of 3% would have been 13% if not for deferred telehealth shipments in the quarter. Either way, it reflected the company's focus on profitable customers/patients at the expense of top-line growth. The greatest line-item improvement on the expense side occurred at the selling and marketing line, which as a percentage of total revenue fell to 62.0%, bettering 4Q21 by 1,520 basis points.

Peripheral metrics also progressed, with subscription revenue as a percentage of total reaching 94% versus 92% in the prior year period. Total active subscribers jumped 40% to 336,946, although the greater advancement was on the WorkSimpli side which improved 64% to 167,751. Telehealth subscribers increased 20% to 169,195.

Possibly most encouraging was management's outlook for FY23, projecting Adj. EBITDA of $15.0 million on revenue of $145 million (based on range midpoints), representing a $29.7 million improvement at the Adj. EBITDA line and 22% growth at the top line, after growing 28% in FY22 vs FY21.

Shares of LFMD rallied on this turn towards profitability have more than tripled from their all-time low.

1Q23 Earnings

The FY23 outlook was reiterated when the company posted net income of $0.06 a share (non-GAAP) on Adj. EBITDA of $2.0 million on revenue of $33.1 million - all records - versus a loss of $0.25 a share (non-GAAP) and Adj. EBITDA of negative $7.6 million on revenue of $29.0 million in 1Q22. Overall, selling and marketing expenses as a percentage of revenue fell 2,500 basis points year-over-year to 50.4%. Additionally, the company's legacy lifestyle healthcare businesses (exclusive of primary care) achieved 20% sequential revenue growth (over 4Q22) with a contribution margin above 30%

That said, revenue from telehealth fell 11% year-over-year to $20.2 million, with the top line carried by a 101% surge in WorkSimpli revenue to $12.9 million, aided by a 65% year-over-year rise in subscriptions to 173,333. That said, the telehealth revenue year-over-year decline was expected with the aforementioned focus on profitable customers and subscribers. Telehealth subscriptions were up 14% year-over-year to 179,933. Virtual primary care patients increased 57% sequentially from ~7,000 at the end of 4Q22 to ~11,000 at the end of 1Q23.

Balance Sheet & Analyst Commentary:

In the quarter, LifeMD was able to secure additional financing of $40 million ($15 million drawn at closing) in the form of a credit facility (with an equity conversion feature) from Avenue Capital. With an operating cash burn of only $2.6 million in 1Q23, management anticipates turning cash flow positive around mid-2023. With additional borrowing capacity at its disposal, the need to further dilute shareholders has essentially been eliminated. The company exited 1Q23 with cash of $11.5 million and debt of $15.2 million. It also has preferred stock outstanding on which it pays annual dividends of $3.1 million.

Over the past month, BTIG ($7 price target), H.C. Wainwright ($9 price target) and B Riley Financial ($7 price target) have all reiterated Buy ratings on LFMD. On a GAAP basis, they anticipate LifeMD losing $0.35 on revenue of $144.6 million in FY23, followed by a loss of $0.25 on revenue of $170.0 million in FY24. For some context, LifeMD lost $1.57 a share (GAAP) in FY22 and $0.15 a share (GAAP) in 1Q23.

Also bullish on the company's prospects are CEO Justin Schreiber and Chief Innovation Officer Stefan Galluppi. The former purchased 50,000 shares at an average price of $2.09 on May 22-23, 2023, while the latter bought 10,000 shares at $2.17 on May 23rd. Several insiders have also added just over $500,000 to their stakes collectively in June.

Verdict:

Until recently, LifeMD, Inc. management's focus on achieving profitability has been overlooked by the Street. Based on its outlook, its stock is trading at an EV/FY23E Adj. EBITDA of just above seven and price-to-FY23E sales of 0.85. With top-line growth projected at 22%, these are attractive long-term metrics.

That said, I don't like to chase this type of massive rally. Therefore, LifeMD, Inc. shares probably merit a small " watch item" holding on any pullback for now. If we get a selloff in the overall market that brings LFMD back in the mid $2s, we may circle back on this name for a possible larger stake at that time, as LifeMD, Inc. does seem like it is turning the corner.

Science studies the repeatable; history studies the unrepeatable ."? N.T. Wright.

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