OptimizeRx Corporation — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 8, 2021. OptimizeRx provides digital communications and patient-support solutions linking life-sciences companies with healthcare providers and patients through EHR, e-prescribing, pharmacy, and mobile channels.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $43.31 million | $24.60 million |
| Gross profit | $24.11 million | $15.44 million |
| Gross margin | 56% | 63% |
| Operating expenses | $26.24 million | $19.13 million |
| Operating loss | $2.14 million | $3.69 million |
| Net loss | $2.21 million | $3.14 million |
| Diluted loss per share | $0.15 | $0.23 |
| Operating cash flow | $(6.31) million | $(1.66) million |
| Cash and cash equivalents, year-end | $10.52 million | $18.85 million |
Revenue rose 76%; Q4 revenue was $16.43 million, up 123% year over year. Q4 operating income was $1.36 million and net income was $1.36 million, following losses in each of the first three quarters. FY2020 operating expenses increased 37%, primarily due to staffing and scaling, while cost of revenue increased faster than sales because of a higher mix of messaging solutions with greater revenue-sharing costs.
Current assets were $32.86 million and current liabilities $10.03 million at year-end, for working capital of $22.9 million and a current ratio of approximately 3.3. Total liabilities were $10.35 million, including lease liabilities and $1.61 million of contingent purchase consideration; the filing reports no off-balance-sheet arrangements. The company reported no funded debt in the presented balance sheet.
Changes, outlook, and material items
- Growth reflected enterprise contracts, more pharmaceutical brands and distribution, expansion of brand messaging, and a full-year contribution from the 2019 RMDY acquisition.
- Gross margin declined from approximately 63% to 56%. Management expected 2021 margins of 56%–58% and said it expected continued strong revenue growth; no specific revenue target was provided.
- Management said the pandemic did not adversely affect 2020 results and cited increased demand for digital health solutions. The company launched TelaRep in 2020 and expanded telehealth-related capabilities.
- Operating cash use increased, with accounts receivable rising by $10.67 million and prepaid expenses by $3.52 million. Management attributed cash use partly to working capital needed to support growth.
- After year-end, the company raised approximately $70.7 million net in a February 2021 public offering. Management said cash on hand and the offering proceeds were sufficient for more than 12 months and that it did not anticipate needing additional cash.
- The company had $7.5 million of minimum partner messaging commitments scheduled for 2021–2022, including $6.25 million in 2021 and $1.5 million in 2022, as disclosed in the filing.
- Revenue concentration is significant: the largest distribution partner generated 52.7% of FY2020 revenue, versus 37.4% in 2019. Three customers each represented more than 10% of 2020 revenue.
- Management reported that 2019 material weaknesses in IT controls and third-party data controls were remediated by year-end 2020. Disclosure controls were deemed effective; the auditor did not provide an opinion on internal control effectiveness.
- The independent auditor identified revenue recognition as a critical audit matter because determining distinct performance obligations, timing, and contract-term effects requires judgment. The auditor issued an unqualified opinion on the 2020 financial statements.
Important investor verification points
- Whether strong revenue growth converts into sustained operating profitability and positive operating cash flow, given the FY2020 net loss and increased working-capital use.
- Whether gross margin stabilizes within management’s 56%–58% 2021 expectation, particularly as partner revenue shares and minimum commitments affect costs.
- Exposure to the largest distribution partner and major customers, and progress in diversifying those relationships.
- Collection of receivables and utilization of prepaid partner and exclusivity payments; year-end receivables were $17.89 million.
- Execution of the post-year-end offering proceeds plan, dilution from equity issuance and the March 2021 increase in authorized incentive-plan shares to 6 million.
- Regulatory, privacy, cybersecurity, partner-contract, and healthcare-industry risks, as well as the company’s ability to maintain effective financial controls while scaling.