OptimizeRx Corporation — Q3 2020 Form 10-Q
Business and period: OptimizeRx provides digital communications and patient-engagement solutions for life sciences companies, physicians, and patients. This unaudited filing covers the quarter and nine months ended September 30, 2020; balance-sheet comparisons are to December 31, 2019.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $10.5 million | $5.0 million | $26.9 million | $17.2 million |
| Gross profit / margin | $6.0 million / 57.1% | $3.0 million / 60.4% | $15.5 million / 57.7% | $11.0 million / 63.7% |
| Operating expenses | $6.2 million | $5.0 million | $19.0 million | $12.3 million |
| Net income (loss) | $(0.3) million | $(1.6) million | $(3.6) million | $(1.2) million |
| Basic and diluted loss per share | $(0.02) | $(0.11) | $(0.24) | $(0.09) |
| Operating cash flow | Not separately stated for the quarter | Not separately stated for the quarter | $(3.7) million | $(0.2) million |
Q3 revenue rose 110% year over year; nine-month revenue rose 56%. Management attributed growth mainly to messaging and patient-engagement products, including the RMDY Health acquisition. Q3 net loss narrowed year over year and from the first two quarters of 2020, while the nine-month loss widened. Operating expenses increased as the company expanded its teams, products, and operations. Cost of revenue and gross margin percentages worsened versus the comparable periods, reflecting product mix; management noted unusually favorable non-recurring revenue in the 2019 nine-month comparison.
Financial position and liquidity
At September 30, 2020, cash and equivalents were $12.0 million, accounts receivable was $13.3 million, total current assets were $27.2 million, and current liabilities were $8.1 million. Working capital was approximately $19.1 million and the current ratio was 3.4, versus approximately $21.0 million and 4.4 at year-end 2019. Total liabilities were $8.5 million and stockholders’ equity was $46.7 million. The filing reports no conventional borrowings; liabilities include lease obligations and contingent purchase consideration.
Nine-month operating cash use was $3.7 million, primarily reflecting working-capital investment, including a partner prepayment and a $6.0 million increase in receivables, partly offset by increased revenue-share payables. Investing cash use was $45,000. Financing used $3.1 million net, including $4.4 million of contingent-consideration payments and $1.3 million of option-exercise proceeds. Cash declined from $18.9 million at year-end 2019. Management said it did not anticipate needing additional capital for operations or planned growth, though acquisitions or strategic opportunities could require capital.
Outlook, risks, and unusual items
- Management expected revenue and partner-network utilization to continue growing during the remainder of 2020. It expected gross margin to improve and cost of revenue to decrease slightly in Q4, while operating expenses would remain around Q3 levels; personnel costs were expected to remain similar or rise only slightly.
- COVID-19 had not noticeably affected revenue through the filing date, according to management. However, the filing warns that a prolonged downturn could reduce customers’ advertising and marketing budgets and that future effects remained uncertain. Offices were closed and employees worked remotely.
- During Q3, the company finalized RMDY contingent consideration at $3.75 million, paid $3.0 million in cash and $750,000 in stock, and reported no remaining RMDY liability. The CareSpeak 2020 revenue target had been achieved; $1.6 million remained payable in early 2021. A $140,390 fair-value charge related to contingent consideration was recorded for the nine-month period.
- The company launched a specialty-drug enrollment solution and TelaRep, an on-demand video-consult tool, and announced a partner agreement expanding access to providers in hospital settings.
- The filing says previously identified material weaknesses in IT controls and controls over third-party data were remediated as of September 30, 2020; management concluded disclosure controls were effective. The company reported no material pending legal proceedings and no off-balance-sheet arrangements.
- Risk factors include COVID-19 uncertainty, economic conditions, regulation, competition, cybersecurity, and access to capital. The filing provides no quantified revenue or earnings guidance.
Important facts for investors to verify
- Whether strong revenue growth converts to improved operating profitability and cash generation, given the nine-month loss and operating cash use.
- Receivable collection timing and customer payment terms, as accounts receivable rose substantially alongside revenue.
- Whether Q4 margin improvement and expense expectations were achieved; these are management expectations, not guarantees.
- Remaining CareSpeak payment timing and the potential effects of product mix and revenue-share costs on margins.
- Potential share dilution: shares outstanding were 15.1 million at September 30, and diluted loss-per-share calculations excluded potentially issuable options and restricted shares as antidilutive.