GlobeNewswire Inc | Aug 17, 2020 10:18AM EDT

August 17, 2020

NEW YORK, Aug. 17, 2020 (GLOBE NEWSWIRE) -- Conversion Labs, Inc.(OTCQB: CVLB), a direct-to-consumer telemedicine and wellness company, reported results for the second quarter and first half ended June 30, 2020.All quarterly and first half comparisons are to the same year-ago period unless otherwise noted. The company will hold a conference call at 1:00 p.m. Eastern time today to discuss the results (see dial-in information, below.)

2020 Financial Highlights

-- Revenue in the second quarter totaled a record $9.1 million, up 237%. For the first half of 2020, revenue increased 148% to a record $13.4 million. -- Gross margin totaled $6.9 million, up 238%. In the first half of 2020, gross margin increased 132% to $9.4 million.

Q2 2020 Operational Highlights

-- Customers on subscription across all brands nearly doubled over previous quarter. -- Advanced the development of the companys new cloud based telemedicine platform, Veritas MD, which builds upon the companys existing digital marketing platform. Veritas MD supports the continued growth and market expansion of the companys telehealth brands that include Rex MD, Shapiro MD and SOS Rx, and enables the rapid launch of new telemedicine offerings for other indications. Full launch expected within the next 60 days following third-party verification of its new e-prescription functionality. -- Investments in customer acquisition for Rex MD drove strong growth in subscription revenue. Data analytics continue to confirm controlled customer acquisition costs and growing customer lifetime value across customer cohorts. -- Completed development for several new Shapiro MD prescription treatments and over-the-counter products for male and female hair loss, including proprietary compounded formulations, which are planned for launch in current quarter. -- Appointed award-winning physician, Dr. Jeremy Fine, and leading health and wellness doctor, Dr. Jeff Toll, to the companys medical advisory board. They will be involved in guiding and advancing Conversion Labs expanding portfolio of telemedicine brands, as well as future brands and products under development.

Q2 2020 Financial Summary

Revenue in the second quarter of 2020 increased 237% to a record $9.1 million from $2.7 million in the same year-ago quarter. The companys PDFSimpli subsidiary, a software as a service (SaaS) that allows users to convert, edit, sign and share PDF documents, contributed net sales of $1.2 million, up 212% from the year-ago quarter.

Gross profit in the second quarter of 2020 increased 238% to $6.9 million, compared to $2.0 million in the same year-ago quarter. Gross profit as a percentage of revenue in the second quarter of 2020 increased to 75.9% from 75.7% in the same year-ago quarter.

Operating expense in the second quarter of 2020 was $10.1 million, up from $2.9 million in the same year-ago quarter. The increase was primarily due to increases of $6.2 million of selling and marketing expenses, as well as $966,000 in general and administrative expenses, $108,000 in other operating expenses, and $41,000 in development costs. The increase was partially offset by a decrease of $52,000 in customer service expenses.

Net loss attributable to common stockholders for the second quarter of 2020 was $3.4 million or $(0.06) per share, as compared to a net loss attributable to common stockholders of $0.8 million or $(0.02) per share in the second quarter of 2019. The net loss for the second quarter of 2020 included certain non-cash or financing-related charges, such as interest expense of $229,000, amortization expenses of $641,000, and stock-based compensation expense of $439,000.

Adjusted EBITDA, a non-GAAP term, totaled negative $2.1 million in the second quarter of 2020, compared to negative $459,000 in the same year-ago quarter (see definition of this non-GAAP term and reconciliation to GAAP, below.)

Cash was $336,000 at June 30, 2020, as compared to $358,000 at March 31, 2020.

First Half 2020 Financial Summary

Revenue in the first half of 2020 increased 148% to a record $13.4 million from $5.4 million in the same year-ago period. The companys PDFSimpli subsidiary, a software as a service (SaaS) that allows users to convert, edit, sign and share PDF documents, contributed net sales of $2.6 million, up 285% from the year-ago quarter.

Gross profit in the first half of 2020 increased 132% to $9.4 million, compared to $4.1 million in the same year-ago quarter. Gross profit as a percentage of revenue in the first half of 2020 decreased to 70.5% from 75.3% in the same year-ago quarter. The decrease was due to the shift in revenue mix to lower margin supplement products, as well as due to software sales that have a cost of sales that can fluctuate due to volatility in merchant processing costs.

Operating expense in the first half of 2020 was $14.4 million, up from $5.5 million in the same year-ago quarter. The increase was primarily due to increases of $6.9 million of selling and marketing expenses, as well as $1.8 million in general and administrative expenses, $146,000 in other operating expenses and $74,000 in development costs. The increase was partially offset by a decrease of $11,000 in customer service expenses.

Net loss attributable to common stockholders for the first half of 2020 was $5.8 million or $(0.10) per share, as compared to a net loss attributable to common stockholders of $1.5 million or $(0.04) per share in the first half of 2019. The net loss for the first half of 2020 included certain non-cash or financing-related charges, such interest expense of $1.0 million, amortization expenses of $919,000, financing transactions expense of $62,000, acceleration of debt discount of $500,000, inventory valuation adjustment of $769,000, and stock-based compensation expense of $535,000.

Adjusted EBITDA, a non-GAAP term, totaled a loss of $2.0 million in the first half of 2020, compared to loss of $555,000 in the same year-ago quarter (see definition of this non-GAAP terms and reconciliation to GAAP, below.)

Management Commentary Our record second quarter results were driven by strong customer acquisition growth and our expanding portfolio of telemedicine brands, said CEO of Conversion Labs, Justin Schreiber. Recurring revenue from subscriptions was up across the board, as we continued to expand our telehealth presence nationwide.

This momentum has continued in the current third quarter. As we announced earlier this month, July revenues hit $3.6 million, 300% higher than July of last year. July sales indicate an annualized revenue run-rate of $43.2 million, and that we are well on track to exceed our guidance of more than $40 million for the year.

Actually, the most exciting aspect of these July results is that our recurring revenue from rebilled subscriptions increased 362% to $1.2 million. As we continue to scale our telemedicine business and customers on subscription, we anticipate our margins to also expand dramatically.

In addition to customer acquisition, we have also been investing heavily in our people, technology, and our product offerings and services, and particularly in the integration of Veritas MD, our new proprietary telemedicine platform. Veritas MD not only provides incredible operational leverage, but also enhances the overall user experience for our patients and doctors. Moreover, it will enable us to roll out new telehealth brands faster and more efficiently than ever before.

Rex MD, our mens health telemedicine line, has been performing tremendously well. Our Shapiro MD line has also been growing, and we are in the process of expanding our telemedicine offering for male and female hair loss. We plan to soon launch two new Shapiro MD over-the-counter products designed to improve customer satisfaction and retention. We are very excited about the future of Shapiro MD, and believe it is one of the most robust hair loss product lines on the market.

Our performance since the beginning of the year has validated our vision and strategies for growth. Given all these positive factors, we recently increased our full-year 2020 revenue outlook from $36 million to more than $40 million.

Our capabilities and platform in telemedicine, combined with the best digital marketing team in the U.S., makes us truly excited for what the future holds for Conversion Labs. We believe this is just the beginning of a long period of growth and success, particularly for building greater shareholder value over the years to come.

Conference CallConversion Labs management will host a conference call followed by a question and answer period to discuss the companys financial results and outlook.

Date: Monday, August 17, 2020Time: 1:00 p.m. Eastern time (10:00 a.m. Pacific time)Toll-free dial-in number: 1-800-437-2398International dial-in number: 1-720-452-9102Conference ID: 6173273

The conference call will be webcast live and available for replay here as well as via a link in the Investors section of the companys website at ir.conversionlabs.com.

Please call the conference telephone number five minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact CMA at 1-949-432-7566.

A replay of the call will be available after 4:00 p.m. Eastern time on the same day through August 31, 2020.

Toll-free replay number: 1-844-512-2921International replay number: 1-412-317-6671Replay ID: 6173273

About Conversion Labs Conversion Labs, Inc. is a telemedicine company with a portfolio of online direct-to-consumer brands. The companys brands combine virtual medical treatment with prescription medications and unique over-the-counter products. Its network of licensed physicians offers telemedicine services and direct-to-consumer pharmacy to consumers across the U.S. To learn more, visit Conversionlabs.com.

The companys PDFSimpli subsidiary is a software-as-a-service that allows users to convert, edit, sign, and share PDF documents online. For more information, go to PDFSimpli.com.

About the Use of Non-GAAP Financial MeasuresThe management of Conversion Labs believes that the use the non-GAAP measure, adjusted EBITDA, is helpful for an investor to assess the performance of the company. The company defines adjusted EBITDA as income (loss) attributable to common shareholders before interest, taxes, depreciation, amortization, financing expense, acceleration of debt discount, inventory valuation adjustment, and stock-based compensation expense.

Adjusted EBITDA is not a measurement of financial performance under generally accepted accounting principles in the United States, or GAAP. Because of varying available valuation methodologies, subjective assumptions and the variety of equity instruments that can impact a companys non-cash operating expenses, management believes that providing a non-GAAP financial measure that excludes non-cash and non-recurring expenses allows for meaningful comparisons between the companys core business operating results and those of other companies, as well as providing the company with an important tool for financial and operational decision making and for evaluating its own core business operating results over different periods of time.

The companys adjusted EBITDA measure may not provide information that is directly comparable to that provided by other companies in its industry, as other companies in its industry may calculate non-GAAP financial results differently, particularly related to non-recurring, unusual items. The companys adjusted EBITDA is not a measurement of financial performance under GAAP, and should not be considered as an alternative to operating income (loss) or as an indication of operating performance or any other measure of performance derived in accordance with GAAP. Conversion Labs management does not consider adjusted EBITDA to be a substitute for, or superior to, the information provided by GAAP financial results.

The following table sets-forth non-GAAP adjusted EBITDA reconciled to its nearest comparable GAAP equivalent:

Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 Net lossattributable $ (3,379,116 ) $ (818,103 ) $ (5,773,844 ) $ (1,481,850 )to commonshareholders Interest 228,875 129,826 1,021,914 300,020 expense, netAmortization 92,937 83,903 179,391 167,807 expenseAmortizationof debt 548,077 (45,328 ) 739,324 86,268 discountFinancingtransactions - - 62,012 - expenseAccelerationof debt - - 500,145 - discountInventoryvaluation - - 769,378 - adjustmentStock-basedcompensation 439,000 191,000 535,000 373,000 expenseAdjusted $ (2,070,227 ) $ (458,702 ) $ (1,966,680 ) $ (554,755 )EBITDA

Important Cautions Regarding Forward-Looking Statements This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things our plans, strategies and prospects -- both business and financial. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Many of the forward-looking statements contained in this news release may be identified by the use of forward-looking words such as "believe," "expect," "anticipate," "should," "planned," "will," "may," "intend," "estimated," and "potential," among others. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this news release include market conditions and those set forth in reports or documents that we file from time to time with the United States Securities and Exchange Commission. All forward-looking statements attributable to Conversion Labs, Inc. or a person acting on its behalf are expressly qualified in their entirety by this cautionary language.

Trademarks are the property of their respective owners.

Company ContactConversion LabsJuan Manuel Pieiro DagneryCFOEmail Contact

Media and Investor Relations ContactRon Both or Grant StudeCMA Investor RelationsTel (949) 432-7566Email Contact



CONVERSION LABS, INC.CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2020 December 31, 2019 (Unaudited) ASSETS Current Assets Cash $ 336,151 $ 1,106,624 Accounts receivable, net 436,025 97,448 Product deposit 281,143 150,000 Inventory, net 808,846 950,059 Other current assets 328,922 442,971 Total Current Assets $ 2,191,087 $ 2,747,102 Non-current assets ROU Asset 19,990 23,625 Capitalized Software, net 305,576 Intangible assets, net 507,646 675,452 Total non-current assets 833,212 699,077 Total Assets $ 3,024,299 $ 3,446,179 LIABILITIES AND STOCKHOLDERS? EQUITY (DEFICIT) Current Liabilities Accounts payable and accrued expenses $ 5,789,399 $ 3,051,156 Notes payable, net 1,070,945 814,734 Contract liabilities 303,670 109,552 Total Current Liabilities 7,164,014 3,975,442 Long-term Liabilities Lease Liability 28,917 29,978 Contingent consideration on purchase of 100,000 500,000 LegalSimpliLiability to issue common stock 540,972 - Deferred tax liability 70,000 70,000 Total Liabilities 7,903,903 4,575,420 Stockholders? Equity (Deficit) Common stock, $0.01 par value; 100,000,000shares authorized, 71,063,440 and53,404,045 shares issued, 70,548,248 and 710,631 534,037 52,888,845 outstanding as of June 30, 2020andDecember 31, 2019, respectivelyAdditional paid-in capital 18,747,862 15,236,396 Accumulated (deficit) (23,705,170 ) (16,594,917 ) (4,246,675 ) (824,484 )Treasury stock, 515,200 and 515,200 shares, (163,701 ) (163,701 )at costTotal Conversion Labs, Inc. Stockholders? (4,410,376 ) (988,185 )(Deficit) Non-controlling interest (469,226 ) (141,056 ) Total Stockholders? (Deficit) (4,879,602 ) (1,129,241 ) Total Liabilities and Stockholders? $ 3,024,299 $ 3,446,179 (Deficit)

CONVERSION LABS, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)

Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Product 7,869,813 2,307,909 10,825,614 4,729,435 revenues, netSoftware 1,219,970 390,498 2,568,981 667,962 revenues, netService - revenues, netTotal $ 9,089,783 $ 2,698,407 $ 13,394,595 $ 5,397,397 revenues, net Cost ofproduct 2,118,001 589,690 3,462,161 1,199,866 revenueCost ofsoftware 72,207 65,521 487,686 133,318 revenueCost of 2,190,208 655,211 3,949,847 1,333,184 revenues Gross Profit 6,899,575 2,043,196 9,444,748 4,064,213 Expenses Selling &marketing 8,394,331 2,215,913 11,140,213 4,206,894 expensesGeneral andadministrative 1,338,549 372,853 2,507,527 707,859 expensesOperating 203,260 95,477 327,751 181,263 expensesCustomerservice 89,482 141,278 257,667 268,216 expensesDevelopment 92,325 50,838 170,467 96,515 CostsTotal expenses 10,117,947 2,876,360 14,403,625 5,460,747 Operating Loss (3,218,372 ) (833,164 ) (4,958,877 ) (1,396,534 ) Interest (228,875 ) (129,826 ) (1,021,914 ) (300,020 )(expense), net Loss fromcontinuingoperations (3,447,247 ) (962,990 ) (5,980,791 ) (1,696,554 )beforeprovision forincome taxes Income taxes - - - - (Benefit) Net Income (3,447,247 ) (962,990 ) (5,980,791 ) (1,696,554 )(Loss) Net (loss)incomeattributable (68,131 ) (144,887 ) (206,947 ) (214,702 )tononcontrollinginterests Net Income(loss)attributable (3,379,116 ) (818,103 ) (5,773,844 ) (1,481,852 )to ConversionLabs, Inc. Basic loss pershareattributableto Conversion $ (0.06 ) $ (0.02 ) $ (0.10 ) $ (0.04 )Labs, Inc.fromcontinuingoperationDiluted lossper shareattributableto Conversion (0.06 ) (0.02 ) (0.10 ) (0.04 )Labs, Inc.fromcontinuingoperation WeightedAverage numberof common sharesoutstandingBasic 61,743,697 46,882,305 57,616,266 46,844,736 Diluted 61,743,697 46,882,305 57,616,266 46,844,736