OptimizeRx Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; filed May 14, 2015. The unaudited statements cover a healthcare technology company whose platforms deliver electronic coupons and savings programs through physician and patient systems. Management cautions that quarterly results are not necessarily indicative of full-year results.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014, restated |
|---|---|---|
| Revenue | $1.488 million | $1.289 million |
| Cost of sales | $756,440 | $561,411 |
| Gross profit / margin | $731,113 / 49.2% | $728,017 / 56.5% |
| Operating expenses | $842,610 | $1.490 million |
| Operating loss | $111,497 | $762,201 |
| Net loss | $111,201 | $762,095 |
| Net loss per share, basic and diluted | $0.00 loss, rounded | $0.05 loss |
| Operating cash flow | $86,692 provided | $226,727 provided |
Revenue increased approximately 15%. Gross profit was nearly unchanged despite higher sales, as cost of sales rose faster than revenue. Revenue-share expense was about 51% of sales, compared with 44% in Q1 2014. Management cited product mix, the LDM settlement, and channel-partner incentives as factors, and expected the share of revenue subject to these costs to remain similar.
Cash increased to $3.511 million from $3.447 million at year-end 2014. Current assets were $5.363 million and current liabilities $2.181 million, leaving working capital of approximately $3.182 million and a current ratio of about 2.5. Total liabilities were $2.181 million; the balance sheet reports no interest-bearing debt. Investing activities used $22,842, primarily for website development and patent rights. There were no financing cash flows in Q1 2015. Cash, cash equivalents and short-term investments are not separately presented; the filing reports cash and cash equivalents.
Changes, outlook and material matters
- Operating expenses fell about 43% year over year, principally because Q1 2014 included a $400,000 lawsuit settlement and substantially higher stock-based compensation. Excluding those two items, management said operating expenses rose approximately 17%.
- Management reported $47,762 of operating income excluding noncash operating expenses, versus a $263,457 loss on that basis in Q1 2014. This is a non-GAAP measure; reported GAAP operating results remained a loss.
- Management expected quarter-over-quarter revenue increases through the remainder of 2015, continued positive operating cash flow and profitability in future quarters. It cited the Practice Fusion rollout, expected integration by the end of Q2, anticipated NextGen campaign activity beginning in June, new pharmaceutical brands, and expansion on existing platforms. These are expectations, not formal quantified guidance.
- The company said it had sufficient cash to operate for more than twelve months and did not anticipate needing to raise additional equity. It also expected operating expenses to increase as it expanded, though not significantly in the near term.
- The Q1 2014 comparative statements were restated for stock-based compensation, revenue-share expense and revenue recognition. Restated Q1 2014 net loss was $762,095, versus $653,315 previously reported.
- Disclosure controls were not effective at March 31, 2015 because of material weaknesses in segregation of duties and financial-reporting IT systems. Management described ongoing remediation, but said full remediation of segregation issues would require additional personnel.
- Legal matters include a former CEO’s $450,000 counterclaim concerning share registration, and company claims against LDM Group and PDR seeking enforcement and damages, including amounts approximating $1.0 million plus alleged lost income and business value. The Wilpon arbitration proceeding was terminated in April 2015. These matters involve uncertainty; the filing does not provide a clear estimate of any potential loss accrual.
- In February 2015, the company agreed to issue 90,000 shares as advisory compensation over a one-year period and allowed up to 60,000 additional shares subject to future contingencies. Certain shares were issued or recorded as payable; subsequent-event disclosures also describe 108,000 shares tied to milestones.
Important facts for investors to verify
- Whether Practice Fusion and NextGen integrations and campaign launches occurred on the expected timetable and generated material revenue.
- Whether revenue growth translated into improved gross margin, given rising revenue-share costs and management’s expectation that those costs remain elevated.
- Whether the company sustained positive operating cash flow and achieved the anticipated profitability, while monitoring receivables and working capital.
- Updates to litigation claims, counterclaims, related legal costs and any resulting financial-statement accruals.
- Progress in remediating the disclosed internal-control material weaknesses, including staffing and financial-reporting systems.
- The effects of the 2014 restatement and any subsequent changes in revenue-recognition or revenue-share accounting, and the final issuance or vesting of advisory and other stock compensation.