OptimizeRx Corporation — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This annual filing also reports fourth-quarter results. OptimizeRx provides healthcare technology, principally distributing pharmaceutical coupons and vouchers through electronic prescribing and electronic health record platforms.
Financial performance
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $7.22 million | $6.50 million |
| Revenue growth | 11% | — |
| Revenue-share expense | $3.62 million; 50.1% of revenue | $3.22 million; 49.5% of revenue |
| Gross profit / margin | $3.60 million / 49.8% | $3.28 million / 50.5% |
| Operating expenses | $4.20 million | $4.31 million |
| Operating loss | $597,000 | $1.03 million |
| Net loss | $595,000; $0.02 per share | $1.03 million; $0.04 per share |
| Cash from operating activities | $515,000 | Cash used: $56,000 |
| Cash and cash equivalents at year-end | $8.21 million | $3.45 million |
| Working capital | Approximately $6.7 million | Approximately $3.2 million |
Fourth-quarter revenue was $2.02 million, gross profit $1.08 million, operating loss $416,000, and net loss $415,000. The company reported no interest expense and no interest-bearing debt in the presented financial statements. Current assets were $11.13 million versus current liabilities of $3.37 million; the reported current ratio was approximately 3.3 to 1.
Changes and business developments
- Revenue increased 11%, attributed to more promoted pharmaceutical brands, expanded distribution channels, and growth in setup, reporting, and coupon-distribution revenue. Promotional transactions rose approximately 25%; coupons were distributed for about 85 brands.
- Gross margin declined modestly as revenue-share expense rose as a proportion of revenue. Management expected revenue-share costs in 2016 to remain similar to or exceed 2015 levels.
- Operating expenses declined about 3%, largely because stock-based compensation fell to $581,000 from $1.17 million and the prior year included a $400,000 lawsuit settlement. Excluding those items, operating expenses increased approximately 32%, reflecting investment in staffing, technology, litigation, and growth.
- Net loss narrowed from $1.03 million to $595,000. Management said the company would have been profitable in both years excluding noncash expenses. Cash from operations improved, although working-capital movements contributed materially to 2015 cash generation.
- WPP invested $4.73 million gross, or $4.35 million net of offering costs, for approximately 20.7% ownership. The investment was the principal source of the increase in cash and working capital.
- Allscripts appointed OptimizeRx its exclusive eCoupon provider across its platforms and agreed to integrate the service into Touchworks. The company paid $250,000 in 2015; a further $650,000 is due upon broad launch, expected in early 2017. The initial payment is refundable if functionality is not widely launched by February 2018.
Outlook, risks, and unusual items
- Management expected continued revenue growth, positive operating cash flow, and profitability in 2016, based on anticipated revenue increases. It cautioned that former-CEO severance payments could make positive operating cash flow unlikely in the first quarter.
- Growth plans include expanding EHR and e-prescribing distribution, increasing provider use of existing networks, launching additional services, and developing VoucherDVM. Management cited a Practice Fusion launch and a planned Allscripts Touchworks rollout; the latter was expected to begin testing in late 2016 and scale in early 2017.
- Customer concentration remains material: the largest five customers generated approximately 52% of 2015 revenue, and the largest customer about 20%. The business also depends on continued customer spending, channel-partner relationships, and successful technology scaling.
- In February 2016, former CEO David Harrell’s employment termination was arranged, with approximately $405,000 in severance over 24 months and a $720,415 payment to redeem 595,384 unissued shares. The filing says the share-redemption payment was made in February 2016.
- Two sets of litigation remain unresolved: a former CEO counterclaim seeking at least $450,000, and litigation against LDM/PDR seeking, among other relief, amounts exceeding $1 million plus claimed lost income and business value. The filing does not establish likely outcomes or recoveries.
- Management concluded disclosure controls were insufficient and internal control over financial reporting was ineffective at year-end, citing inadequate segregation of duties/risk assessment and IT reporting systems. Planned remediation was not complete; the auditor did not attest to internal controls.
- Other risks include potential revenue-share audit adjustments, healthcare regulation and coupon restrictions, competition, intellectual-property disputes, and the thinly traded OTCQB stock. Management said it had sufficient cash for more than twelve months and did not anticipate raising equity for operating purposes.
Important facts for investors to verify
- Whether reported operating cash flow is sustainable after working-capital changes and the 2016 severance and share-redemption payments.
- Progress and economics of the Allscripts integration, including the $650,000 contingent payment and refund provision.
- Customer concentration, renewal and expansion of channel-partner agreements, and the effect of revenue sharing on margins.
- Current status, potential exposure, and any subsequent developments in the former-CEO and LDM/PDR litigation.
- Remediation of the disclosed material weaknesses and improvement of disclosure controls and financial reporting systems.
- Actual 2016 revenue, profitability, and cash-flow performance against management’s expectations.