Optimizerx Corp quarterly report, Q1 FY2017

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Business context and reporting period

OptimizeRx Corporation provides digital health and pharmaceutical-sponsored messaging and savings services through electronic health record (EHR), e-prescribing, pharmacy, and patient platforms. This unaudited Form 10-Q reports the three months ended March 31, 2017, compared with the same quarter of 2016.

Financial performance and liquidity

  • Revenue: $2.15 million, up 22% from $1.76 million. Management attributed growth primarily to clinical and brand messaging; revenue is not disaggregated by service.
  • Gross profit and margin: Gross margin dollars were $770,340, down from $866,735. Gross margin was approximately 35.8%, compared with 49.3% a year earlier, reflecting higher costs, product mix, and brand messaging’s higher current revenue-share expense.
  • Operating results: Operating expenses rose 35% to $1.66 million. Operating loss widened to $890,438 from $361,829; net loss increased to $882,682 from $351,916. Basic and diluted loss per share was $0.03 versus $0.01.
  • Cash flow: Operating activities used $197,236, compared with $286,087 used in Q1 2016. Investing activities used $116,146, principally for equipment and development/integration costs. There were no financing cash flows in Q1 2017.
  • Liquidity: Cash and cash equivalents were $6.72 million at quarter-end, down from $7.03 million at December 31, 2016. Current assets of $9.59 million exceeded current liabilities of $3.87 million; working capital was approximately $5.72 million and the current ratio was 2.5:1, versus 2.8:1 at year-end.
  • Debt and liabilities: The balance sheet lists no borrowing or debt line item; total liabilities were $3.87 million, including $1.95 million of revenue share payable and $1.33 million of deferred revenue.

Material changes and developments

  • Cost of sales increased to $1.38 million from $892,793, outpacing revenue growth and reducing gross margin.
  • Operating expense increases included salaries and benefits, development and integration, and depreciation and amortization. Management linked personnel growth to hiring and development costs to new EHR integrations and expanded technology capacity.
  • Deferred revenue increased to $1.33 million from $386,581; accounts receivable declined to $2.81 million from $3.06 million.
  • The company reported new or expanded channel relationships, including Allscripts Touchworks, EyeCare Leaders, SingleCare, and PARx Solutions, and launched a brand messaging system.
  • During March, the company issued 18,750 shares to independent directors under its compensation plan. Shares outstanding were 29,737,617 as of April 30, 2017.

Outlook, risks, and unusual items

  • No specific numerical revenue or earnings guidance was provided. Management expected continued growth in financial, brand, and clinical messaging and further expansion of its network during 2017.
  • Management expected operating expenses to remain at or above 2017 levels as it expands, and anticipated a continued, managed loss for the year. It expected brand messaging margins to improve and the overall revenue-share percentage to decrease over future quarters, with a stated goal of a reduction of at least 10% through new channels and updated agreements.
  • A $650,000 payment was due in the quarter ending June 30, 2017, for expansion of financial messaging on Allscripts Touchworks and related exclusivity. The company planned to capitalize and amortize the payment over the exclusivity period.
  • Management said it did not anticipate needing additional capital for operations or growth plans, though acquisitions or strategic opportunities could require capital. Interim results may not indicate full-year results.
  • The company is pursuing LDM Group and PDR Network in Missouri state court over alleged breaches of agreements and related claims. It seeks enforcement and damages, including at least $1.0 million plus claimed lost income and business value; the case was in discovery. The filing does not state an expected outcome.
  • Disclosure controls were not effective as of March 31, 2017, due to material weaknesses involving segregation of duties and IT reporting systems. Management described remediation steps and expected to address the weaknesses by the next quarterly filing.
  • The filing reported no material subsequent events through issuance of the financial statements and no off-balance-sheet arrangements.

Important facts for investors to verify

  1. Whether revenue growth can continue while gross margin recovers, particularly given brand messaging’s higher revenue-share costs.
  2. Whether management achieves its targeted reduction in revenue-share percentage and improves brand messaging margins.
  3. Funding and accounting treatment of the $650,000 Allscripts payment, and the commercial returns from the related expansion and exclusivity.
  4. Progress on internal-control remediation and whether the material weaknesses are resolved.
  5. Developments and potential financial effects of the LDM/PDR litigation; claimed damages are not an indication of any recovery.
  6. Cash use and working-capital trends as the company expands; the filing does not provide formal numerical full-year guidance.