OptimizeRx Corporation — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2016. The unaudited interim results are not necessarily indicative of full-year results. OptimizeRx provides digital savings and clinical messaging solutions through healthcare technology platforms.
Financial performance
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $1.786 million | $2.007 million | $5.459 million | $5.200 million |
| Gross margin | $1.063 million | $0.963 million | $2.920 million | $2.517 million |
| Gross margin as % of revenue | 59.5% | 48.0% | 53.5% | 48.4% |
| Operating expenses | $1.312 million | $0.875 million | $4.134 million | $2.699 million |
| Net income (loss) | $(0.243) million | $0.088 million | $(1.186) million | $(0.180) million |
- Revenue fell 11% year over year in Q3, which management attributed partly to brands pausing for return-on-investment studies and other customer issues. Nine-month revenue rose 5%.
- Revenue-share expense declined as a share of sales, from 52.0% to 40.5% in Q3 and from 51.6% to 46.5% for the nine-month period. Management cited product mix and expected further improvement from new channels and revised agreements, while noting quarterly results may vary with mix.
- Operating costs increased substantially, including higher salaries and benefits, professional fees, marketing, travel, and business-development spending. The nine-month total includes a $160,000 lawsuit settlement expense.
Cash, liquidity, and capital
- At September 30, cash and cash equivalents were $7.575 million; current assets were $10.002 million and current liabilities $3.221 million. Working capital was approximately $6.8 million, with a current ratio of 3.1, versus approximately $7.8 million and 3.3 at year-end 2015.
- Nine-month operating cash flow was $(50,521), investing cash flow $(224,991), and financing cash flow $(357,415). Cash declined $632,927 to $7.575 million. Management said operating cash flow would have been approximately $312,000 excluding a one-time payment to the former CEO.
- The company reported no off-balance-sheet arrangements. The balance sheet lists current liabilities and no separate long-term debt; the filing does not provide a clear standalone debt metric.
- Management stated available cash was sufficient for operations and it did not anticipate needing to raise equity for operating purposes, though strategic investments to accelerate growth remained possible.
Business developments, outlook, and risks
- Management expected growth to resume in Q4 2016, citing new brand launches and expansion of existing business. It said the September 2016 agreement making OptimizeRx Allscripts’ exclusive LogRx partner was expected to have a significant and material impact on 2017 sales. No quantified revenue guidance was provided.
- Other reported initiatives included expanding EHR distribution and sales staffing, a co-marketing agreement with TrialCard, a pharmacy partnership with RxWiki, and a strategic relationship with WPP. Management cited independent client studies showing promotional return on investment of up to 12:1.
- Management expected operating expenses to continue increasing as it implemented its growth plan. Forward-looking statements are subject to economic, regulatory, capital-availability, competitive, and other risks.
- Litigation against LDM Group and PDR Network (now ConnectiveRx) remained in discovery in Missouri. The company sought enforcement of agreements and damages, including amounts exceeding $1 million plus alleged lost income and business value; any recovery is uncertain.
- The dispute with former CEO Shadron Stastney was settled in May 2016 for $50,000 and 100,000 shares, along with registration of 133,333 existing shares; the company reported fulfilling those obligations.
- Disclosure controls were deemed not completely effective because of material weaknesses in segregation of duties, Board-to-management communications, and IT reporting systems. Management described ongoing remediation efforts, including system upgrades and procedures to improve Board information flow.
Important facts for investors to verify
- Whether paused customer brands resumed and whether the expected Q4 recovery and 2017 Allscripts contribution materialized.
- Whether higher growth-related expenses translate into sustained revenue growth and improved profitability and cash generation.
- Developments, costs, and potential outcomes in the LDM/PDR litigation.
- Progress in remediating the disclosed internal-control material weaknesses.
- The effects of equity issuance and stock-based compensation on ownership dilution; 29,672,132 common shares were outstanding on November 4, 2016.
- The cash-flow and liquidity impact of payments to executives and other one-time items.