LifeMD, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. LifeMD operates direct-to-patient telehealth businesses and owns 85.6% of WorkSimpli, a subscription software business. Cleared, an allergy telehealth platform, was acquired in January 2022.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $29.0 million | $18.2 million |
| Gross profit / margin | $23.8 million / 81.9% | $15.0 million / 82.4% |
| Operating loss | $(13.1) million | $(11.9) million |
| Net loss | $(13.3) million | $(11.9) million |
| Net loss attributable to common stockholders | $(14.1) million; $(0.46) per share | $(11.6) million; $(0.47) per share |
| Cash used in operating activities | $(8.1) million | $(9.1) million |
| Cash used in investing activities | $(7.4) million | $(0.05) million |
- Telehealth revenue rose 70% to $22.6 million; WorkSimpli revenue rose 31% to $6.4 million. Total revenue increased 60% year over year.
- Gross margin was broadly stable, down 0.4 percentage point. Segment gross margins were 77.5% for Telehealth and 97.5% for WorkSimpli.
- Operating expenses rose 37% to $36.9 million, including selling and marketing of $21.9 million and general and administrative expense of $12.3 million. Stock-based compensation was $4.5 million, versus $2.3 million a year earlier.
- At March 31, cash was $25.1 million, current assets $29.6 million, current liabilities $25.6 million, and working capital $4.0 million, down from $22.1 million at year-end 2021. Total liabilities were $33.9 million; notes payable were $63,400, excluding leases and acquisition-related obligations.
- Cash declined $16.2 million in the quarter. Investing outflows included $2.1 million of capitalized software, $4.0 million for ResumeBuild, and approximately $1.0 million for Cleared.
Material changes and notable transactions
- Cleared’s preliminary acquisition consideration was approximately $9.1 million, including $5.1 million contingent consideration, plus potential earn-outs of up to $72.8 million based on revenue targets. Purchase accounting remains preliminary.
- WorkSimpli acquired ResumeBuild assets for $4.5 million, including $4.0 million paid upfront and $0.5 million contingent consideration. The seller may also receive quarterly payments over two years.
- Telehealth’s operating loss increased to $13.3 million from $10.1 million; WorkSimpli reported operating income of $0.2 million versus an operating loss of $1.8 million.
Outlook, risks, and unusual items
- Management expects operating losses and cash burn through Q3 2022, with cash flow turning positive in Q4 2022. It states it expects sufficient cash for the 12 months after the report, citing revenue growth, improved efficiency, expense controls, and financing availability. These are forward-looking expectations, not guarantees.
- Management reported approximately $20.1 million of cash as of the filing date, compared with $25.1 million at March 31. The filing does not clearly reconcile this subsequent cash figure to the quarter-end balance.
- As of March 31, the company reported approximately $59.5 million available under its ATM agreement and $32 million under its shelf registration. Equity issuance could dilute shareholders.
- Three lawsuits were disclosed: Harborside alleges entitlement to shares and damages; GoGoMeds alleges unpaid invoices, with LifeMD asserting counterclaims; and William Blair alleges breaches of an engagement letter and seeks damages. The company says potential losses cannot yet be estimated and intends to defend the matters.
- Disclosure controls were deemed ineffective because of material weaknesses involving segregation of duties, written accounting and reporting procedures, and computer-system access/security and disaster recovery. Remediation is underway.
- Management cited risks including continued losses and funding needs, customer acquisition costs, competition, supply-chain constraints and costs, acquisition integration, regulation, and ability to scale. The company reported modest increases in freight and product costs and longer shipping times.
- Revenue recognition includes estimates for discounts, returns, and allowances. The company also disclosed it lacks a process to defer revenue in certain limited cases when shipment is delayed, though management considers the impact immaterial.
Most important facts for investors to verify
- Reconcile the $20.1 million filing-date cash disclosure with the $25.1 million March 31 balance and assess current cash burn and financing needs.
- Track quarterly operating cash flow and whether the forecast of positive cash flow in Q4 2022 is achieved.
- Review the final Cleared purchase-price allocation, earn-out valuation, and ResumeBuild’s performance and contingent payments.
- Monitor outcomes and potential exposure in the three lawsuits; loss estimates are not yet available.
- Assess remediation of internal-control weaknesses and the quality of revenue-cutoff and return-reserve processes.
- Evaluate stock-based compensation, potential share dilution, and any future use of the ATM or shelf financing.