LifeMD, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2022; financial statements are unaudited. LifeMD operates telehealth businesses and majority-owned WorkSimpli, a subscription software business. In January 2022 it acquired Cleared, an allergy telehealth platform; in February, WorkSimpli acquired ResumeBuild assets.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $31.4 million | $24.9 million | $90.9 million | $65.5 million |
| Gross profit / margin | $26.7 million / 85.0% | $19.9 million / 79.6% | $76.3 million / 83.9% | $53.0 million / 81.0% |
| Operating loss | $(6.8) million | $(12.6) million | $(35.6) million | $(40.6) million |
| Net loss | $(7.2) million | $(14.4) million | $(33.4) million | $(43.3) million |
| Net loss attributable to common stockholders | $(8.1) million | $(14.4) million | $(35.9) million | $(42.8) million |
- Q3 revenue grew 26% year over year: telehealth revenue rose 15% to $21.4 million and WorkSimpli revenue rose 57% to $10.0 million. Nine-month revenue grew 39%, with telehealth up 39% and WorkSimpli up 38%.
- Gross margin improved, with management citing pricing and product mix. Q3 selling and marketing expense declined 15% to $17.2 million; general and administrative expense rose to $12.5 million. Nine-month operating expenses increased 19% to $111.9 million, including higher stock compensation and a $2.7 million Cleared goodwill impairment.
- Cash used in operating activities was $21.0 million for the first nine months, versus $27.3 million a year earlier. Investing activities used $12.1 million, including $6.7 million for capitalized software, $4.0 million for ResumeBuild, and $1.0 million for Cleared. Financing activities used $2.4 million, mainly for preferred dividends.
- Cash was $5.8 million at September 30, 2022, down from $41.3 million at December 31, 2021. Management separately reported approximately $3.4 million cash as of the filing date. Working capital was negative $12.0 million, compared with positive $22.1 million at year-end 2021.
- Total liabilities were $30.3 million. The balance sheet showed no notes payable at quarter-end; significant obligations included $3.1 million contingent consideration and $1.5 million purchase-price payable. Series A preferred stock carries an 8.875% cumulative annual dividend; $2.3 million of preferred dividends were paid during the nine-month period.
Material changes and notable items
- Cleared acquisition accounting included $8.4 million goodwill; the company recorded a $2.7 million impairment after lowering Cleared financial projections. Its contingent consideration was remeasured, producing a $2.5 million gain for the nine-month period and a $248,000 expense in Q3.
- WorkSimpli option exercises on September 30 reduced LifeMD’s ownership from approximately 85.6% to 73.64%.
- LifeMD settled two lawsuits through mediation, issuing 400,000 common shares and potentially owing another 100,000 shares. A separate William Blair lawsuit remained in an early stage; the company said a potential loss could not yet be estimated.
- Common shares outstanding were 31.46 million at quarter-end. The filing also reports substantial equity compensation and potential dilution from outstanding options, restricted stock units, warrants, and preferred securities.
Outlook, risks, and controls
- Management expected further losses through Q4 2022 and stated that the company’s ability to continue as a going concern depends substantially on future profitability and continued support or financing. The filing identifies substantial doubt about the company’s ability to continue as a going concern.
- Management said it was curtailing expenses and pursuing revenue growth and operating efficiencies. It cited approximately $59.5 million available under its ATM sales agreement and $32 million available under its shelf registration; use of equity financing could dilute shareholders. No quantified revenue or earnings guidance was provided.
- Disclosed risks include ongoing cash burn, access to capital, execution and integration of acquisitions, customer acquisition and competition, supply-chain and cost pressures, healthcare regulation, and potential dilution. Management also reported material weaknesses in internal control over financial reporting and concluded disclosure controls were not effective.
Key facts for investors to verify
- Reconcile the reported $5.8 million quarter-end cash balance with management’s approximately $3.4 million filing-date cash figure, and assess subsequent cash use and financing needs.
- Track operating cash burn, expense reductions, and progress toward profitability against the going-concern disclosure.
- Review Cleared’s performance, projections, contingent earnout exposure, and the basis for its goodwill impairment.
- Confirm the final share implications of the lawsuit settlement and monitor the William Blair case and other contingencies.
- Assess potential dilution from equity issuance, preferred dividends, stock awards, options, warrants, and WorkSimpli’s reduced ownership.
- Monitor remediation of the disclosed internal-control material weaknesses.