OptimizeRx Corporation — Q1 2020 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three months ended March 31, 2020, compared with the three months ended March 31, 2019. OptimizeRx provides digital health and patient-support solutions, primarily to life-sciences clients, through healthcare technology platforms. Its network reaches more than 60% of U.S. ambulatory providers. The company’s late-2019 acquisition of RMDY contributed acquired intangible assets and increased amortization.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $7.58 million | $5.21 million; up 46% |
| Cost of revenue | $3.24 million; about 43% of revenue | $1.58 million; about 30% of revenue |
| Gross profit and margin | $4.34 million; 57.3% | $3.63 million; 69.6% |
| Operating expenses | $6.60 million | $3.49 million; up about 89% |
| Operating income (loss) | $(2.26) million | $132,165 |
| Net income (loss) | $(2.20) million; $(0.15) per share | $6,529; reported as $0.00 per share |
| Operating cash flow | $(3.74) million | $0.89 million provided |
| Cash and cash equivalents | $15.21 million at March 31 | $18.85 million at December 31, 2019 |
| Working capital / current ratio | $17.84 million / 2.9 | $21.03 million / 4.4 at December 31, 2019 |
| Total liabilities | $12.61 million | $11.78 million at December 31, 2019 |
Management attributed revenue growth primarily to messaging products. The lower gross margin reflected product mix: Q1 2019 included an unusually high share of launch-assistance and other nonrecurring revenue not subject to revenue sharing. Operating expenses rose as the company expanded its sales force and product, development, data, and finance teams, and incurred acquisition-related and integration costs.
Operating cash use reflected working-capital investment, including a $2.0 million prepayment to a partner to be expensed over the balance of the year, a $1.6 million increase in receivables, and a $1.0 million increase in revenue-share payable. Investing activities used $15,937; financing activities provided $112,152 from option exercises. No interest expense or cash interest payment was reported. The filing reports lease obligations and contingent acquisition consideration, rather than conventional interest-bearing borrowings: lease liabilities totaled $535,869 and contingent purchase-price payable totaled $6.72 million, including $4.00 million current.
Outlook, risks, and notable items
- Management outlook: No specific revenue or earnings guidance was provided. Management expected continued growth in messaging and patient-engagement activity during 2020, and expected quarterly gross margin to improve through the rest of the year. Its targets were 2020 cost of revenue of 40% or lower and gross margin of 63%, versus Q1 cost of revenue of about 43% and gross margin of 57.3%.
- Expenses and liquidity: Management expected operating expenses to remain around Q1 levels or slightly higher, while salaries and stock-based compensation were expected to remain similar or rise slightly. It said it did not anticipate needing additional capital for operating purposes or planned growth, though acquisitions or strategic partnerships could require capital.
- COVID-19: The company reported no noticeable revenue impact through the filing date, and said remote work had not impaired contract execution or core service delivery. It warned that a prolonged downturn could reduce customers’ advertising and marketing budgets and that future effects were uncertain. Offices were closed, employees worked remotely, and travel was eliminated.
- Acquisition consideration: Potential additional payments for recent acquisitions depend on revenue conditions. Management said it still expected to pay the maximum CareSpeak contingent consideration and estimated no change in RMDY contingent consideration from its December 31, 2019 calculation.
- Controls and contingencies: Disclosure controls were not effective at March 31, 2020 because of unremediated material weaknesses in IT general controls and controls over the completeness and accuracy of third-party data. Management expected full remediation by the end of Q3 2020. The company reported no material pending litigation, no off-balance-sheet arrangements, and no material subsequent events.
Important facts for investors to verify
- Whether the anticipated margin recovery and 2020 targets remain achievable given Q1’s unfavorable product mix and cost of revenue.
- How quickly receivables convert to cash, and the timing and accounting treatment of the $2.0 million partner prepayment.
- The amount, timing, and revenue conditions for the $6.72 million contingent purchase-price payable, including the expected maximum CareSpeak payment.
- Progress toward remediating the disclosed material weaknesses and the effect of those weaknesses on reporting reliability.
- A stock-based compensation discrepancy: the MD&A expense table lists $854,512, while the cash-flow statement and equity statement list $754,512; the stock-compensation note’s option and restricted-stock expenses also sum to $754,512.