OptimizeRx Corporation — FY2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; filed March 8, 2018. The filing is an annual report, not a standalone fourth-quarter filing. OptimizeRx provides digital health messaging through electronic health record and e-prescribing platforms, including financial assistance and pharmaceutical brand messaging.
Financial performance
| Metric | FY2017 | FY2016 | Change / context |
|---|---|---|---|
| Net revenue | $12.13 million | $7.75 million | Up 56%; Q4 2017 revenue was $4.01 million, up 75% year over year. |
| Revenue share expense | $6.17 million | $3.41 million | About 51% of revenue versus 44%. |
| Gross profit / margin | $5.95 million / 49% | $4.34 million / 56% | Gross profit increased, but margin declined, primarily due to a higher proportion of lower-margin brand messaging. |
| Operating expenses | $8.08 million | $5.92 million | Up 36%, driven mainly by staffing, technology development and stock-based compensation. |
| Operating loss | $2.13 million | $1.58 million | Loss widened. |
| Net loss | $2.10 million; $0.07 per share | $1.54 million; $0.05 per share | Both years included significant noncash expenses; FY2017 noncash expense was approximately $1.45 million. |
| Cash and cash equivalents | $5.12 million | $7.03 million | Down $1.91 million. |
| Operating cash flow | $(1.48) million | $(0.47) million | Higher working-capital needs and lower revenue-share payable contributed to the outflow. |
| Working capital / current ratio | $5.27 million / 2.5 | $6.51 million / 2.8 | Liquidity declined but remained positive. |
| Total liabilities | $3.54 million | $3.67 million | The balance sheet lists current liabilities; no borrowings are shown. |
Material changes and business developments
- Revenue growth reflected additional pharmaceutical brands, broader distribution and stronger brand messaging sales. The company reported access through its network to more than 500,000 healthcare providers and a greater-than-20% increase in provider reach during 2017.
- Allscripts Touchworks financial messaging launched in February 2017 and ramped gradually. OptimizeRx also launched five new EHR platforms during 2017 and expected three more in Q1 2018.
- Revenue concentration remains relevant: one customer represented approximately 12% of revenue in each year, although the largest customer differed between 2016 and 2017. WPP-affiliated agencies generated $3.70 million, about 30% of FY2017 revenue, and WPP owned approximately 20.5% of the company’s shares.
- Cash used in investing activities was $42,243 in 2017, versus $349,538 in 2016. Financing activities used $390,000, principally for the repurchase and cancellation of 500,000 shares held by the former CEO.
Outlook, risks and unusual items
- Management expected strong revenue growth in 2018, citing additional channels, brands and products, and targeted a gross margin of 55%. These are expectations, not quantified revenue guidance.
- Management stated that cash on hand was sufficient to fund operations for more than 12 months and that it did not anticipate needing additional equity for operating purposes.
- Management expected revenue-share expense as a percentage of revenue to decline from 2017 levels as newer, lower-share channels scaled and brand messaging volume increased. It also expected technology development costs to decrease significantly in 2018 following 2017 investments.
- Key risks include dependence on pharmaceutical customers and EHR/e-prescribing partners, customer and related-party concentration, execution and scaling challenges, competition, healthcare regulation, privacy and cybersecurity, and continued losses. Revenue-share arrangements are subject to partner audits.
- Commitments include the remaining Allscripts agreement payment, stated as extended until October 2018, and $220,440 of additional payments related to termination of the prior hosting arrangement. The filing also reports minimum lease commitments of $145,996 for 2018–2019.
- February 2018 equity awards and plan changes were subsequent events: the plan’s authorized shares increased to 5.5 million; performance-conditioned restricted shares and options were granted, and vesting on 300,000 existing options was accelerated.
- The company reported no current legal proceedings or off-balance-sheet arrangements. Management said previously identified internal-control weaknesses had been remedied and controls were effective at year-end; the auditor did not attest to internal-control effectiveness. The independent auditor changed in August 2017.
Important facts for investors to verify
- Whether 2018 channel launches and Allscripts growth translated into sustained revenue growth and the stated 55% gross-margin target.
- Cash conversion, receivables collection and runway, particularly the $1.17 million WPP-related receivable and ongoing operating cash outflow.
- Customer, WPP and distribution-partner concentration, including contract renewal, revenue-share terms and audit exposure.
- The exact remaining Allscripts payment and hosting-termination obligations, and their timing and effect on liquidity.
- Share-count and equity-award disclosures: the filing gives 29,318,081 shares outstanding in its cover and balance sheet, but one note states 29,318,018.