2023-06-26 18:25:54 ET
Summary
- LifeMD's year-to-date returns of 106% show a management turnaround, with the company aiming to reach cash flow breakeven by mid-2023.
- The telehealth market is forecasted to grow at a 35% compound annual growth rate from 2023, with LifeMD's portfolio of brands poised to benefit from this trend.
- LifeMD's first-quarter revenue grew by 13.8% year-over-year, with gross profit margin expanding to 87.28%, and net losses improving to $4 million.
LifeMD ( LFMD ) might have lost half of its market cap over the last three years but its year-to-date returns of 106% reflect a management turnaround that's picked up steam on the back of LifeMD's fiscal 2023 first-quarter earnings from a negative shareholders' equity, net losses of $45.5 million for its fiscal 2022, and a cash position that entered 2023 at a 2-year low. The direct-to-patient telehealth company's headwinds were compounded by difficult year-ago comps to its pandemic years that saw demand for telehealth surge to astronomical highs that have since had a comedown. Bulls should be excited here as previously anemic market appetite for loss-making companies looks to be increasing. Sentiment as captured by LifeMD's price-to-sales multiple has been inverting from a near-low of 0.25x to just under 1x.
To be clear, the stock market has gone from translating every dollar of revenue earned by LifeMD to less than 30 cents of market cap gained to near parity in a space of three months. The New York-based company operates a portfolio of brands offering treatment for a range of ailments from hair loss to insomnia, and dermatological conditions. This includes NavaMD, RexMD, Cleared, and ShapiroMD. Crucially, LifeMD faces structural long-term demand for telehealth with this market being forecasted to reach $402 billion by 2032, a 35% compound annual growth rate from 2023. LifeMD's bull case is built around this growing adoption of digitally native healthcare solutions driving steady cash generation.
The First Quarter Turnaround
LifeMD reported first-quarter revenue of $33 million , a growth of 13.8% over its year-ago quarter and a beat by $2.19 million on consensus estimates. However, bears who form the 8.28% short interest would flag that 39% of revenue and the bulk of the growth was driven by WorkSimpli . Indeed, telehealth actually saw revenue decline year-over-year by $2.4 million to $20.2 million . WorkSimpli is a SaaS platform offering different products to manage work-related tasks. For example, it offers PDFSimpli which allows its users to upload, convert, edit, and add e-signatures to their documents.
The 100% year-over-year growth of this is impressive and comes on the back of WorkSimpli's $4 million acquisition of a resume-building subscription software last year close in February. This surge in growth from WorkSimpli has pushed LifeMD closer to core profitability. The company's gross profit margin at 87.28% during the first quarter was a 175 basis point sequential expansion from its prior fourth quarter. It was also a material expansion from a gross profit margin of 81.93% in the year-ago period.
Gross profit at $28.9 million during the first quarter was a 21.5% growth over the year-ago period with LifeMD's net losses coming in at $4 million. This loss was a material improvement from a loss of $12.7 million in the fourth quarter and an even larger loss of $13.3 million realized in its year-ago comp. Net loss per share of $0.15 was a huge $0.31 improvement from its year-ago figure. Critically, cash burn from operations whilst still negative at $2.6 million improved from a burn of $8.1 million in the year-ago comp. This path toward greater profitability was set against $11.5 million in cash and equivalents as of the end of the first quarter. This implies a cash runway of 5.5 quarters assuming cash burn remains constant from the first quarter.
A Drive Towards Profitability
The company secured a $40 million debt financing deal last year with Avenue Capital , an institutional debt fund. As LifeMD has only drawn $15 million against this facility, its cash runway stands to be materially extended against undrawn funds of $25 million. Critically, LifeMD stated during its first-quarter earnings call that its operations are on track to reach cash flow breakeven by mid-2023. Hence, the business stands at the cusp of further pushing investor sentiment higher if it reaches this guidance. Bears would highlight that LifeMD currently still forms part of the loss-making risk-off tickers that are trading markedly below their 2021 highs. Hence, cash flow breakeven would have to come and be sustained for the currently improving market sentiment to move even higher.
This is as traffic to the company's website has been increasing in recent months against a reduction in marketing expenses. The age and gender distribution of the company's visitors also looks positive with males and females at around 50% each and against a significant under 34-year-old cohort.
The preferreds shares ( LFMDP ) are also up 20% since I last covered them with their $2.21875 annual coupon now forming a 12.7% yield on cost. I like the commons here but will hold off recommending them as a buy until cash flow breakeven is reached. I currently hold a position in the preferreds and intend to hold these over the long term. I'd expect their current 30% discount to par to recover more strongly if the company reaches breakeven.
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LifeMD's Turnaround Shows Sign Of Life