LifeMD, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited results cover LifeMD’s telehealth business and majority-owned WorkSimpli software business. LifeMD acquired allergy telehealth platform Cleared in January 2022 and WorkSimpli acquired the ResumeBuild assets in February 2022.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $30.5m | $22.3m | $59.5m | $40.5m |
| Gross profit | $25.8m | $18.2m | $49.6m | $33.2m |
| Gross margin | 84.8% | 81.5% | 83.4% | 81.9% |
| Operating loss | ($15.6m) | ($16.1m) | ($28.7m) | ($28.0m) |
| Net loss | ($13.0m) | ($17.0m) | ($26.2m) | ($28.9m) |
| Net loss attributable to common shareholders | ($13.8m) | ($16.8m) | ($27.9m) | ($28.4m) |
| Basic and diluted loss per share | ($0.45) | ($0.64) | ($0.91) | ($1.12) |
- Revenue rose 37% in Q2 and 47% in the first half. Telehealth revenue increased 41% and 54%, respectively; WorkSimpli revenue increased 26% and 28%.
- Gross margin improved, with management citing improved pricing and product mix. Q2 telehealth gross margin was 80% and WorkSimpli’s was 97.8%.
- Operating expenses increased 21% in Q2 and 28% in the first half. First-half selling and marketing was $43.7m; general and administrative expense was $25.6m, including $8.5m of stock-based compensation.
- Q2 net loss improved year over year, partly reflecting a $2.735m favorable remeasurement of Cleared contingent consideration. A $2.735m Cleared goodwill impairment was also recorded as operating expense. These offsetting items should be distinguished from underlying operating performance.
Cash flow, liquidity and capital
- Cash was $11.7m at June 30, 2022, down from $41.3m at December 31, 2021. The filing separately reports approximately $4.2m cash as of its August 2022 filing date.
- For the six months, operating cash use was $18.2m, investing cash use $9.9m, and financing cash use $1.5m; cash declined $29.6m. Investing included $4.5m of capitalized software, $4.0m for ResumeBuild, and $1.0m for Cleared.
- Working capital shifted from positive $22.1m at year-end to a deficit of $7.4m at June 30. Current assets were $18.5m and current liabilities $25.9m.
- The balance sheet reported no notes payable at June 30 and no remaining PPP loan balance. It included $2.9m contingent consideration and $1.5m purchase price payable among long-term liabilities; operating lease liabilities totaled $1.6m.
- LifeMD reported $59.5m available under its ATM agreement and $32m under its shelf registration at June 30. No ATM shares were sold in the first half. Accessing equity financing could dilute shareholders.
- Series A preferred stock carries an 8.875% cumulative dividend; $1.6m of preferred dividends were recorded for the first half.
Outlook, risks and unusual items
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern, citing accumulated losses, cash needs, and dependence on future profitability and continued support or financing. The filing says further losses were expected through Q3 2022. Management said it was curtailing expenses and pursuing revenue growth and operating efficiencies; financing availability and terms were not assured.
- Acquisitions: Cleared’s purchase accounting remained preliminary, with up to $72.8m of potential earnout consideration tied to revenue targets. Its financial projections declined, prompting the impairment and contingent-consideration remeasurement. ResumeBuild involved a $4.5m purchase price, including $0.5m contingent consideration, and further payments based on profits subject to a minimum.
- Litigation: The company disclosed lawsuits from Harborside Advisors, GoGoMeds, and William Blair. Harborside’s complaint implies damages of $5.0m–$33.0m; GoGoMeds alleges unpaid invoices of $273,859 and LifeMD has asserted counterclaims; Blair seeks damages including an alleged minimum fee of $1.0m. The company intended to defend the matters; some potential losses were not estimable at the reporting date.
- Controls: Management concluded disclosure controls were not effective due to material weaknesses involving segregation of duties, written accounting and reporting procedures, and computer access/security and disaster recovery. Remediation was underway.
- Other risks: Management cited supply-chain delays and cost increases, competition, regulation, acquisition integration, customer acquisition and retention, and the need to raise capital. It also disclosed dependence on third-party manufacturers, pharmacies, and fulfillment providers.
Important facts for investors to verify
- Reconcile the reported $11.7m June 30 cash balance with the approximately $4.2m cash figure reported as of the filing date, and assess subsequent cash burn and liquidity needs.
- Evaluate the going-concern warning, the timing and likelihood of financing, and potential dilution from equity issuance.
- Track whether revenue growth can translate into lower operating losses and sustainable cash generation, including the effects of customer acquisition spending and stock-based compensation.
- Review Cleared’s revised outlook, remaining goodwill, earnout exposure, and final acquisition accounting; assess ResumeBuild’s performance and contingent payments.
- Monitor the three disclosed legal matters and remediation of the material weaknesses in internal controls.