LifeMD, Inc. (LFMD) — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. The filing was signed August 9, 2023. LifeMD operates Telehealth and WorkSimpli, a subscription software business.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $35.9 million | $30.5 million | $69.1 million | $59.5 million |
| Gross profit / margin | $31.4 million / 87.4% | $25.8 million / 84.8% | $60.3 million / 87.3% | $49.6 million / 83.4% |
| Operating loss | $4.9 million | $12.9 million | $7.7 million | $26.0 million |
| Net loss | $5.9 million | $13.0 million | $9.3 million | $26.2 million |
| Net loss attributable to common stockholders / loss per share | $7.5 million / $0.23 | $13.8 million / $0.45 | $12.3 million / $0.38 | $27.9 million / $0.91 |
- Q2 revenue increased 18% year over year. WorkSimpli revenue grew 66% to $13.6 million; Telehealth revenue was nearly flat at $22.4 million, up 0.4%.
- For the first six months, revenue grew 16%. WorkSimpli increased 81% to $26.5 million, while Telehealth declined 5% to $42.6 million.
- Q2 segment gross margins were 81.5% for Telehealth and 96.9% for WorkSimpli. For the six-month period, they were 81.1% and 97.3%, respectively.
- Operating expenses fell 6% in Q2 and 10% for the six-month period, including lower sales and marketing and general and administrative costs. Customer service and development expenses increased.
- 2022 comparisons included Cleared goodwill impairment and a reduction in contingent consideration, each approximately $2.7 million in Q2 and the first half; these items offset one another in reported operating expenses.
Cash, debt and liquidity
- Cash was $11.9 million at June 30, 2023, versus $4.0 million at December 31, 2022. Management reported approximately $6.4 million of cash as of the filing date.
- For the first six months, operating cash flow was positive $2.0 million, compared with negative $18.2 million in 2022. Investing cash flow was negative $4.1 million and financing cash flow positive $10.0 million. Operating cash generation included substantial noncash stock compensation and increases in accrued expenses and other liabilities.
- Working capital remained negative at $11.3 million, improving from a deficit of $20.1 million at year-end. Current assets were $20.2 million and current liabilities $31.5 million.
- At June 30, notes payable were $0.7 million and long-term debt, net, was $13.5 million. The Avenue senior secured facility funded $15 million in March, matures October 2026, and carried a 12.75% rate at June 30. Interest-only payments continue until November 2024.
- The facility includes a $5 million minimum unrestricted-cash covenant and, beginning with the quarter ending September 30, 2023, a minimum adjusted trailing six-month cash-flow covenant of $2 million. The company reported compliance as of the filing date. A further $5 million committed borrowing was available in Q4 2023; an additional $20 million was uncommitted.
- LifeMD had an accumulated deficit of approximately $202.9 million. Management concluded that substantial doubt exists about the company’s ability to continue as a going concern; cost reductions and revenue initiatives do not alleviate that doubt. No numerical revenue or earnings guidance was provided.
Material developments, outlook and risks
- Management attributed WorkSimpli growth to demand, marketing expansion, digital capabilities and the ResumeBuild brand. Telehealth’s first-half decline was attributed to lower online sales demand; Q2 net revenue benefited from lower refunds and rebates, partly offset by reduced demand.
- Management said it is curtailing expenses and pursuing stronger revenue and operational efficiency. It also cited the broader telehealth market as a potential source of interest, while warning that future profitability and access to financing are uncertain.
- The Avenue financing refinanced CRG debt; repayment of the CRG loan resulted in a $325,000 extinguishment loss. The company had $59.5 million available under its ATM program at June 30, 2023, subject to market conditions and potential share dilution.
- Disclosure controls were deemed ineffective due to material weaknesses involving segregation of duties, revenue recognition, accounting and SEC-reporting procedures, and IT general controls. Management described remediation efforts; the weaknesses were not reported as remediated.
- Previously disclosed Harborside/GoGoMeds disputes and the William Blair case were settled. The company issued 100,000 shares for the former settlement in July and stated that the settlement costs were reflected in its results.
- Subsequent events included a July ATM sale of 88,021 shares for net proceeds of $410,000 and a July conversion of Series B preferred stock into 1,010,170 common shares. The company also issued shares for Cleared acquisition installments and legal settlement obligations.
- Other risks include continuing operating losses, declining Telehealth demand, reliance on external financing, debt covenants and interest costs, competition, supplier dependence, dilution, and execution of the company’s growth and cost-reduction plans.
Key facts for investors to verify
- Cash after quarter-end and compliance with the Avenue minimum-cash and cash-flow covenants.
- Whether the committed Q4 borrowing becomes available, and the terms and availability of any additional financing.
- Trends in Telehealth demand, WorkSimpli growth, recurring revenue, and segment profitability.
- Progress in remediating the reported material weaknesses, particularly revenue-recognition and IT controls.
- Potential dilution from ATM issuance, preferred-stock conversion, warrants, equity awards, and acquisition-related share payments.
- How management’s going-concern assessment changes as cash needs, operating performance, and financing availability evolve.