OptimizeRx Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. The unaudited consolidated results compare with Q1 2022. OptimizeRx is a digital health technology company connecting life sciences organizations, healthcare providers, and patients through a point-of-care network.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $13.0 million | $13.7 million |
| Gross profit / margin | $7.4 million / 57.2% | $8.1 million / 59.0% |
| Operating expenses | $14.5 million | $11.9 million |
| Operating loss | $7.1 million | $3.8 million |
| Net loss / diluted loss per share | $6.4 million / $0.37 | $3.8 million / $0.21 |
| Operating cash flow | $(0.09) million | $4.08 million |
| Investing cash flow | $(1.55) million | $(0.07) million |
| Financing cash flow | $(0.13) million | $0.26 million |
Revenue declined approximately 5% year over year. Cost of revenue was nearly flat at $5.6 million, but rose as a share of revenue to 42.8% from 41.0%; management attributed the lower gross margin to solution and channel mix. Operating expenses rose approximately 22%, including stock-based compensation of $4.4 million versus $3.2 million. Other general and administrative expenses increased $1.4 million, mainly due to headcount and growth-related investments. Interest income was $0.67 million, compared with virtually none in Q1 2022.
At March 31, cash and cash equivalents were $16.4 million and short-term U.S. Treasury investments were $57.3 million. Current assets of $95.9 million less current liabilities of $7.6 million produced working capital of approximately $88.3 million; the reported current ratio was approximately 13:1. The filing shows no borrowings; lease liabilities totaled $0.21 million. Total stockholders’ equity was $124.0 million.
Operating cash flow was nearly break-even despite the net loss, supported by $5.0 million of noncash expenses and collections of receivables. Investing activity included $56.9 million of Treasury bill purchases and $55.6 million of redemptions; management said the purchases sought higher interest returns on excess cash.
Changes and operating indicators
- Net loss widened from $3.8 million to $6.4 million, reflecting lower revenue and higher operating expenses.
- Rolling 12-month net revenue retention fell to 86% from 124%; management cited customer spending slowdowns and longer sales cycles, especially for large or new implementations.
- Average revenue per top-20 pharmaceutical manufacturer fell to $1.99 million from $2.61 million. The share of revenue from those manufacturers decreased to 58% from 74%, while penetration remained 90%.
- Revenue per average full-time employee declined to $605,113 from $733,275, attributed to slower revenue growth and a higher average workforce.
Outlook, risks, and notable items
Management believes operating cash generation and existing funds will support current operations and planned growth for at least the next 12 months, and expects to generate cash beyond that period. No specific revenue or earnings guidance was provided. The company may seek debt or equity financing for acquisitions, strategic relationships, capital expenditures, or working capital.
- Management cited pharmaceutical customer spending pressures, industry seasonality, customer concentration, competition, growth execution, healthcare regulation, cybersecurity, network reliability, inflation, and macroeconomic conditions among risks. The company said first-quarter activity is typically seasonally lower.
- The company had $14.9 million of future minimum payments under partner arrangements, expected to be reflected in cost of revenues during 2023–2025.
- Disclosure controls and procedures were assessed as ineffective at the reasonable-assurance level because of a previously reported material weakness in internal control over financial reporting. Management described remediation efforts involving third-party SOC-1, Type 2 reports or alternative control testing.
- The Board authorized a new share repurchase program of up to $15 million, expiring by March 12, 2024; no shares were repurchased in Q1.
- After quarter-end, CEO William Febbo forfeited a prior equity grant and received a new option and restricted-stock-unit grant with aggregate grant-date value of $2.5 million. The filing says the change will be accounted for as a modification.
- The company reported no material pending legal proceedings and no material changes to the risk factors previously disclosed in its 2022 Form 10-K.
Important facts for investors to verify
- Whether customer spending and sales-cycle trends improve, particularly given the decline in net revenue retention and average revenue per top-20 customer.
- Whether the company can restore gross margin and control operating expenses while continuing growth investments and substantial stock-based compensation.
- Progress and timing of remediation of the material weakness in internal controls.
- Cash generation relative to the $14.9 million partner-payment commitments and any planned repurchases, acquisitions, or financing.
- The filing’s cash-flow statement reports ending cash of $16,443,667, while the balance sheet reports $16,443,666; confirm the one-dollar difference in the underlying filing.