LifeMD, Inc. — Q3 2023 Form 10-Q
Business context and reporting period. The unaudited filing covers the quarter and nine months ended September 30, 2023, with comparisons to 2022. LifeMD operates direct-to-patient telehealth businesses and owns 73.32% of WorkSimpli, a subscription software business. Figures are in U.S. dollars.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net revenue | $38.6 million | $31.4 million | $107.7 million | $90.9 million |
| Gross profit / margin | $33.8 million / 87.6% | $26.7 million / 85.0% | $94.1 million / 87.4% | $76.3 million / 83.9% |
| Operating loss | $(4.6) million | $(7.1) million | $(12.3) million | $(33.1) million |
| Net loss | $(5.3) million | $(7.2) million | $(14.6) million | $(33.4) million |
| Net loss attributable to common stockholders | $(6.9) million | $(8.1) million | $(19.2) million | $(35.9) million |
| Basic and diluted loss per share | $(0.20) | $(0.26) | $(0.58) | $(1.17) |
- Revenue mix and change: Q3 telehealth revenue was $24.3 million, up 14%; WorkSimpli revenue was $14.3 million, up 42%. For the nine months, telehealth revenue was $66.9 million, up 1%, while WorkSimpli revenue was $40.8 million, up 65%. Management cited lower telehealth refunds and rebates in Q3; nine-month telehealth growth was limited by lower online sales demand.
- Costs and margins: Q3 operating expenses rose 14% to $38.4 million, including higher marketing, customer service and development costs. Nine-month operating expenses fell 3% to $106.5 million, reflecting lower marketing, G&A and other costs, partly offset by higher customer service and development expenses. Nine-month results also benefited from the absence of 2022 Cleared impairment and contingent-consideration items.
- Segment results: Q3 telehealth gross margin was 81.6%, with a $7.7 million operating loss; WorkSimpli gross margin was 97.9%, with $3.1 million operating income. For nine months, segment operating loss/income was $(20.9) million for telehealth and $8.5 million for WorkSimpli.
- Cash flow: Nine-month operating cash flow was positive $3.1 million, versus negative $21.0 million in 2022. Investing cash outflow was $6.5 million, mainly software development spending; financing cash inflow was $14.7 million. Cash increased $11.3 million to $15.3 million at September 30.
- Liquidity and balance sheet: Current assets were $24.9 million and current liabilities $32.5 million, giving negative working capital of $7.6 million and a current ratio of approximately 0.76. Total assets were $40.7 million, total liabilities $51.8 million and stockholders’ deficit $11.1 million. Cash was reported as approximately $12.9 million as of the filing date, below the September 30 balance.
- Debt: Avenue senior secured facility had $20 million outstanding as of the filing date, matures October 1, 2026, and carried a 13.25% rate at September 30. Interest-only payments continue until November 2024. Up to a further $20 million under the facility is uncommitted. The company also reported $426,000 of current notes payable at quarter-end.
Material developments, outlook and risks
- Management stated that substantial doubt exists about the company’s ability to continue as a going concern, citing its accumulated deficit of approximately $209.8 million, significant historical losses, and dependence on profitability and continued support or financing. Expense reductions and revenue initiatives do not, in management’s view, alleviate that substantial doubt.
- Avenue covenants require at least $5 million of unrestricted cash at each month-end and, beginning September 30, 2023, adjusted trailing six-month cash flow of at least $2 million each quarter. The company reported compliance as of the filing date.
- The company reported no specific numerical revenue or earnings guidance. Management said it is pursuing revenue growth and operational efficiencies, significantly curtailing expenses, and views the telehealth market favorably. It cautioned that financing may not be available on favorable terms.
- After quarter-end, LifeMD sold 829,886 shares through its ATM in October and November, receiving net proceeds of $5.3 million; it also issued shares for vested awards and a Cleared purchase installment. These transactions add liquidity but dilute shareholders.
- LifeMD’s disclosure controls were ineffective due to material weaknesses involving segregation of duties, revenue-recognition controls, written accounting and reporting procedures, and IT general controls. Management described remediation efforts, including shipment-based revenue controls and improved documentation and IT controls.
- Harborside/GoGoMeds and William Blair disputes were settled; related settlement costs and share issuance are reflected in the filing. Other disclosed risks include competition, customer acquisition, regulatory and supply issues, financing needs, and ability to scale and achieve profitable operations.
Important facts for investors to verify
- Updated cash, operating cash burn and liquidity runway; reconcile $15.3 million at September 30 with the approximately $12.9 million reported as of the filing date.
- Ongoing compliance with Avenue’s cash and cash-flow covenants, debt cost and terms, and availability of any additional financing.
- Whether telehealth revenue stabilizes and WorkSimpli growth and margins persist, including the effects of marketing spend, refunds and customer retention.
- Progress toward profitability and expense reductions, and the status of material-weakness remediation and revenue-recognition controls.
- Potential dilution from ATM sales, equity awards, warrants and convertible debt; also confirm subsequent share issuance and the remaining Cleared installment obligations.