OptimizeRx Corporation — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. The unaudited consolidated statements compare Q1 2019 with Q1 2018; balance-sheet figures compare March 31, 2019 with December 31, 2018.
Business context
OptimizeRx provides digital health messaging through electronic health record platforms, connecting pharmaceutical companies with healthcare providers and supporting patient access to medication assistance, authorization, education, and clinical information. The company cited a network giving more than half a million providers access to its services. Its late-2018 CareSpeak acquisition contributed to higher amortization and certain operating costs.
Financial highlights
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Revenue | $5.209 million | $4.112 million; up 27% |
| Gross profit and margin | $3.626 million; 69.6% | $2.104 million; 51.2% |
| Operating expenses | $3.494 million | $2.295 million; up about 52% |
| Operating income (loss) | $132,165 | $(191,196) |
| Net income (loss) | $6,529 | $(189,179) |
| Operating cash flow | $889,969 provided | $787,388 used |
| Cash and cash equivalents | $10.134 million | $8.914 million at Dec. 31, 2018 |
| Working capital | About $11.6 million; current ratio 4.0 to 1 | About $11.5 million; current ratio 3.7 to 1 at Dec. 31, 2018 |
Cost of revenue fell to about 30% of revenue from about 49%, which management attributed to product mix and improved revenue-share terms. Operating expenses rose primarily with staffing and related costs, stock compensation, advertising and promotion, professional fees, and CareSpeak-related amortization and facilities. The quarter’s $148,000 expense from a change in the fair value of contingent consideration related to CareSpeak.
Cash provided by operations included a substantial benefit from collecting accounts receivable: receivables declined to $4.903 million from $6.458 million at year-end. Cash used in investing was $13,848; financing provided $343,785, principally from stock-option exercises. No interest-bearing borrowings or interest expense were reported. Total liabilities were $5.815 million, including contingent purchase-price payables of $2.513 million and lease obligations of $648,000. The company reported no off-balance-sheet arrangements.
Material changes and unusual items
- Revenue and gross margin increased year over year, and the company moved from an operating and net loss to modest operating and net income.
- Operating expenses increased faster than revenue. Management linked the rise to hiring, higher stock-based compensation, marketing, professional fees, and acquisition-related costs.
- In Q1 2019, OptimizeRx adopted the new lease accounting standard, recording right-of-use assets and lease liabilities. At March 31, lease liabilities were $647,781; adoption included a $3,229 cumulative-effect charge to opening accumulated deficit.
- Common shares outstanding rose to 12,278,833 from 12,038,618 at year-end, reflecting option exercises, restricted awards, and director compensation.
Outlook, risks, and controls
Management expected quarterly gross margins of at least 60% and positive quarterly operating cash flow for the balance of 2019. It expected to remain profitable quarterly absent unexpected or one-time expenses, and expected operating expenses to remain at or slightly above Q1 levels while expanding the business. The company planned to expand its reach and use of EHR/e-prescribing partners, add pharmaceutical brands and clients, and pursue growth in hospital and enterprise markets. It said it did not anticipate needing additional capital for operations or planned growth, though acquisitions or strategic opportunities could require capital. No quantified revenue or earnings guidance was provided.
Disclosure controls and procedures were deemed ineffective as of March 31, 2019 because of unremediated material weaknesses in segregation of duties and IT systems supporting financial reporting. The company hired accounting staff, selected new accounting software expected to be implemented in Q3 2019, and improved review documentation. Management cautioned that actual results may differ from forward-looking statements, citing economic conditions, regulation, capital availability, interest rates, competition, and accounting standards. The company reported no material pending litigation and no material subsequent events.
Important facts for investors to verify
- Whether revenue growth and favorable product mix persist, and whether gross margin stays at or above management’s stated 60% expectation.
- Whether operating expenses grow more slowly than revenue and quarterly profitability and positive operating cash flow continue.
- How CareSpeak contingent consideration changes as its 2019 and 2020 revenue targets are assessed, and the resulting cash payment obligations.
- Progress remediating the identified internal-control weaknesses, including implementation of the new accounting software.
- The quality and timing of operating cash generation, including reliance on accounts-receivable collections and movements in partner payables.