OptimizeRx Corporation — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; unaudited. OptimizeRx provides digital health messaging through electronic health record platforms, connecting pharmaceutical companies with healthcare providers.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Net revenue | $4.112 million | $2.152 million |
| Revenue share expense | $2.008 million | $1.382 million |
| Gross profit / gross margin | $2.104 million / 51.2% | $0.770 million / 35.8% |
| Operating expenses | $2.295 million | $1.661 million |
| Operating loss | $0.191 million | $0.890 million |
| Net loss | $0.189 million; $0.01 per share | $0.883 million; $0.03 per share |
| Cash used in operating activities | $0.787 million | $0.297 million |
Revenue increased 91%, primarily from growth in messaging products, new and returning clients, and expanded distribution. Revenue included $1.331 million from related parties, compared with $0.752 million a year earlier. Revenue share expense fell to approximately 49% of revenue from 64%, and gross margin improved. Salaries, benefits, and stock-based compensation were major contributors to higher operating expenses; stock-based compensation was $497,122 versus $129,444.
Cash and cash equivalents were $4.299 million at March 31, down from $5.123 million at year-end. Current assets were $8.335 million and current liabilities $2.439 million, yielding working capital of approximately $5.897 million and a current ratio of 3.4:1. Total liabilities were $2.439 million; the balance sheet reports no borrowings, and the company reported no interest expense. Operating cash use was attributed in part to changed payment terms with a key partner and payment of year-end liabilities. Investing cash use was $36,566; there were no financing cash flows in the quarter.
Changes, outlook, and notable items
- Management attributed the narrower loss to revenue growth and improved gross margin. It targeted gross margin of at least 55% by Q4 2018 and said it expected quarterly profitability no later than Q4 2018. It also expected operating expenses to remain around 2018 levels or slightly higher, and anticipated positive operating cash flow for the remainder of 2018. These are forward-looking expectations, not guarantees.
- Management expected continued growth through additional brands, broader use of existing partners, new pharmaceutical clients, and expansion of EHR/e-prescribing distribution. It cited integration and capacity investments, including a transition to Amazon Web Services.
- ASC 606 was adopted January 1, 2018 using the modified retrospective method. Adoption increased opening deferred revenue by $142,027 and reduced opening retained earnings by the same amount. It lowered Q1 revenue by $117,911; the company expected that amount to be recognized by year-end. Management described the ongoing impact as immaterial.
- In March, the company issued 300,000 shares valued at $447,000 to a WPP subsidiary, which owns approximately 20% of the company, to settle amounts due under a comarketing agreement. The agreement was terminated. The share issuance was noncash and extinguished a revenue-share payable.
- After quarter-end, the company completed a private placement on May 2, 2018 of 5,000,000 shares at $1.80 per share, for $9.0 million gross proceeds; the filing previously estimated net proceeds of approximately $8.3 million. Proceeds are for working capital. The financing dilutes existing holders. The company also committed to a one-for-three reverse split and Nasdaq listing-related requirements. Registration-statement delays can trigger liquidated damages of 1.5% of each investor’s investment per 30-day period, capped at 5%.
- The filing says there were no material pending legal proceedings or off-balance-sheet arrangements. Management identified risks including economic, legislative and regulatory changes, capital availability, interest rates, competition, and accounting changes. It also cautioned that Q1 results may not indicate full-year performance.
Important facts for investors to verify
- Whether the company achieved its stated Q4 2018 profitability, 55% gross-margin, and positive-operating-cash-flow targets.
- Cash conversion and working-capital trends, including collection of receivables and payment terms with key partners.
- Revenue growth, gross margin, and the extent of revenue and commercial relationships involving related parties, including WPP.
- Use of the offering proceeds, post-offering share count and dilution, and completion of the reverse split and Nasdaq listing requirements.
- Performance of EHR integrations and distribution expansion, and whether operating costs and stock-based compensation followed management’s expectations.