LifeMD, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. The company is a direct-to-patient telehealth and consumer-products business, with brands including Rex MD, Shapiro MD and newly launched Nava MD, and owns approximately 85.6% of PDF software provider LegalSimpli. Unless otherwise noted, comparisons are with the same 2020 periods.
Financial performance and liquidity
| Metric | Q2 2021 | Six months 2021 |
|---|---|---|
| Revenue | $22.3 million, up 145% | $40.5 million, up 203% |
| Gross profit / margin | $18.1 million / 81.2% (81.4% in 2020) | $33.0 million / 81.6% (77.4% in 2020) |
| Operating loss | $16.1 million | $28.0 million |
| Net loss attributable to LifeMD | $16.8 million; $0.64 per share | $28.4 million; $1.12 per share |
| Operating cash flow | Not separately reported in the provided filing text | $(19.8) million, versus $(1.1) million in 2020 |
Q2 product revenue was $15.8 million, up 101%, and software revenue was $6.5 million, up 434%. For the first half, product revenue was $29.1 million, up 169%, and software revenue was $11.4 million, up 349%. Rex MD was the largest reported product brand in Q2.
Operating expenses substantially outpaced revenue growth: Q2 expenses increased 223% to $34.2 million, and first-half expenses increased 299% to $61.1 million. Selling and marketing was the largest expense, at $22.4 million in Q2 and $41.0 million for the half-year. Management attributed the increases mainly to customer-acquisition spending, infrastructure growth and stock-based compensation.
At June 30, cash was $17.4 million, current assets $22.5 million and current liabilities $18.5 million, producing working capital of $3.9 million versus a $1.4 million deficit at year-end 2020. Accounts payable and accrued expenses were $16.7 million. Total liabilities were $28.1 million. Debt included $9.3 million of long-term debt, net of discount, and $438,000 of current notes payable. The company also had $3.9 million of Series B preferred stock classified as mezzanine equity.
First-half investing cash outflow was $1.0 million, primarily for capitalized software. Financing cash inflow was $29.0 million, including $13.5 million net proceeds from a February equity offering and $15.0 million gross proceeds from June debt issuance. Cash increased by $8.2 million during the half-year.
Material changes versus the prior period
- Revenue accelerated across product and software lines, while losses and operating cash use also increased significantly.
- Gross margin improved for the first half, which management attributed principally to a greater software-revenue mix and lower software costs as a share of software revenue. Q2 gross margin was slightly lower than the prior-year quarter.
- The company issued a $15 million senior secured redeemable debenture on June 1, 2021. Interest is 6% for the first six months, 9% for the next three months and 12% thereafter through maturity on June 1, 2024. It also issued 500,000 warrants at $12 per share, with up to 1,000,000 additional warrants contingent on the debt remaining outstanding at 12 and 24 months. The filing records the debt at $9.3 million net of warrant-related discount.
- LifeMD raised approximately $13.5 million net in a February common-stock offering and increased its LegalSimpli ownership from 51% to approximately 85.6% through a restructuring and purchases.
- Common shares outstanding increased during the period; additional options, restricted stock units and warrants create potential dilution.
Outlook, risks and unusual items
- Management expected further losses through year-end 2021 and continued cash burn in the second half, while expecting the burn rate to improve in future quarters. It did not provide specific revenue, earnings or margin guidance.
- The company disclosed an accumulated deficit of approximately $108.6 million and substantial historical losses. Management said it expected cash to be sufficient for the next 12 months, citing revenue growth, anticipated lower cash burn, expense controls and financing availability. It also reported approximately $12.5 million of cash as of the filing date and forecast use of approximately $15.3 million over the following 12 months; the filing does not clearly reconcile these figures with the June 30 cash balance or explain the implied funding sources in detail.
- The company had an effective shelf registration with stated remaining capacity of $90 million and an at-the-market program of up to $60 million; no shares had been sold under these arrangements by June 30. Future financing may dilute shareholders, and the debenture requires 35% of gross proceeds from ATM stock sales to be applied to partial redemptions.
- Management cited higher freight, component and product costs, longer shipping times, supplier concentration, COVID-19-related uncertainty, competition, execution and scaling risks, and regulatory exposure—including potential corporate-practice-of-medicine and fee-splitting issues.
- Two securities class actions were voluntarily dismissed. A separate ADA and state-law class action concerning accessibility of the Rex MD website remained pending; damages were not quantified. The company stated it intended to defend the matter.
- Disclosure controls were deemed ineffective due to material weaknesses involving segregation of duties, written accounting and reporting procedures, computer-system access and disaster recovery, and related-party transaction approvals. Management described remediation efforts.
- Unusual items included $4.9 million of first-half stock-based compensation and $184,914 of PPP loan forgiveness. The filing also discloses related-party office and fulfillment arrangements and an implicit inventory purchase commitment of approximately $2.6 million.
Most important facts for investors to verify
- How the reported $12.5 million of cash at the filing date, $15.3 million forecast cash use and stated 12-month liquidity sufficiency reconcile, including assumptions about financing and the ATM facility.
- Whether revenue growth can translate into improved unit economics and lower operating cash burn given substantial marketing spending and continuing supply-chain cost pressures.
- The debenture’s effective financing cost, secured terms, warrant dilution and required ATM-proceeds redemptions, as well as any future equity issuance.
- Progress in remediating the disclosed material weaknesses and any subsequent changes in internal-control effectiveness.
- Developments in the pending accessibility lawsuit, telehealth regulatory compliance and reliance on concentrated manufacturers and other service providers.