LifeMD, Inc. — Q1 2023 Form 10-Q Summary
Reporting period: Three months ended March 31, 2023; comparative period is Q1 2022. LifeMD operates telehealth businesses and majority-owned WorkSimpli, a subscription software business.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $33.1 million | $29.0 million | +14% |
| Gross profit / margin | $28.9 million / 87.3% | $23.8 million / 81.9% | Margin +5.4 percentage points |
| Operating loss | $2.9 million | $13.1 million | Improved by $10.3 million |
| Net loss attributable to common stockholders | $4.8 million | $14.1 million | Loss per share: $0.15 vs. $0.46 |
| Cash used in operations | $2.6 million | $8.1 million | Use decreased by $5.5 million |
| Cash used in investing | $1.8 million | $7.4 million | Use decreased by $5.6 million |
| Cash from (used in) financing | $12.0 million | $(0.8) million | Primarily reflects Avenue financing |
- Revenue mix: Telehealth revenue was $20.2 million, down 11%, which management attributed to lower online sales demand. WorkSimpli revenue was $12.9 million, up 101%; it represented 39% of revenue, compared with 22% a year earlier.
- Costs and margins: Total operating expenses fell 14% to $31.8 million, chiefly from lower selling and marketing and general and administrative costs. Gross margin rose to 87.3%; segment margins were 80.6% for telehealth and 97.7% for WorkSimpli.
- Cash and liquidity: Cash was $11.5 million at quarter-end and approximately $12.8 million as of the filing date. Working capital remained negative at $7.9 million, an improvement from negative $20.1 million at year-end 2022. Total liabilities were $41.2 million; stockholders’ deficit was $12.0 million.
- Debt: The balance sheet included $13.4 million of convertible long-term debt, net, and $1.8 million of current notes payable. The Avenue facility funded $15 million gross; proceeds were used in part to repay CRG debt and pay fees. The filing reports $15 million outstanding under Avenue at filing.
Material changes and notable items
- On March 21, 2023, LifeMD closed a senior secured convertible credit facility with Avenue of up to $40 million: $15 million funded, $5 million of additional committed loans potentially available in Q4 2023, and $20 million uncommitted. It matures October 1, 2026; interest is at least 12.5%, with interest-only payments until November 2024. Avenue received warrants and may convert up to $2 million of the funded loans at $1.49 per share.
- The Avenue facility requires at least $5 million of unrestricted cash at each month-end and, starting with the quarter ending September 30, 2023, at least $2 million of trailing six-month cash flow at each quarter-end.
- LifeMD recorded a $325,000 loss on extinguishing its CRG loan, including a prepayment penalty and fees. Operating cash use also reflected a $3.2 million decrease in accounts payable.
- In February 2023, the Cleared acquisition payment terms were amended: the purchase price was reduced by $250,000 to $3.67 million, earn-out payments were removed, and remaining installments were scheduled through January 2024. The company issued 337,895 shares for the first installment during the quarter and 455,319 shares for the second installment in April.
Outlook, risks and contingencies
- No numerical revenue or earnings guidance is provided. Management says it is pursuing revenue growth, operational efficiencies, and significant expense reductions, but states these actions do not alleviate substantial doubt about the company’s ability to continue as a going concern. The filing cites an accumulated deficit of approximately $195.3 million and dependence on future profitability and ongoing support from stockholders, affiliates, and creditors.
- Management disclosed that the Avenue cash-flow covenant begins in September 2023. The additional $5 million tranche is committed but subject to facility terms; the further $20 million is uncommitted. The ATM had $18.435 million of stated availability, subject to Form S-3 “baby shelf” limits and market conditions.
- Disclosure controls were assessed as ineffective due to material weaknesses involving segregation of duties, revenue-recognition controls, accounting and reporting policies, and IT general controls. Remediation is underway.
- The company continues to face a lawsuit brought by William Blair concerning a financing engagement; it says a potential loss cannot yet be estimated and intends to defend the action. Two other previously disclosed lawsuits were settled in 2022, with the possibility of 100,000 additional shares under the settlement. Management reported no material changes to the risk factors in its 2022 Form 10-K.
- Other risks highlighted include competition, demand and customer acquisition, supplier and pharmacy dependence, financing needs, regulation, acquisition integration, and the company’s ability to scale its platform and achieve profitable operations.
Important facts for investors to verify
- Whether LifeMD maintains the Avenue facility’s $5 million minimum-cash requirement and meets the cash-flow covenant when it becomes effective.
- Actual cash burn, financing availability, and progress toward profitability given the going-concern warning and negative working capital.
- Telehealth demand trends and whether WorkSimpli’s rapid growth persists, including the effect of discounts and customer retention.
- Potential dilution from Avenue warrants and conversion rights, Cleared installment shares, equity awards, and possible ATM sales.
- Progress in remediating internal-control weaknesses and developments in the William Blair litigation.