OptimizeRx Corporation — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2018; financial statements are unaudited. OptimizeRx operates a digital health messaging platform integrated with electronic health records, connecting pharmaceutical companies with healthcare providers and supporting patient medication access and adherence.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Net revenue | $5.42 million | $3.10 million | $14.63 million | $8.12 million |
| Gross margin | $3.15 million; 58.1% | $1.40 million; 45.1% | $8.11 million; 55.5% | $3.43 million; 42.2% |
| Operating expenses | $2.92 million | $2.03 million | $7.81 million | $5.32 million |
| Operating income (loss) | $223,178 | ($629,658) | $305,579 | ($1.89 million) |
| Net income (loss) | $244,928 | ($622,786) | $336,258 | ($1.87 million) |
| Basic and diluted earnings (loss) per share | $0.02 | ($0.06) | $0.03 | ($0.19) |
- Revenue increased 75% year over year in Q3 and 80% for the nine-month period. Management attributed growth primarily to messaging products, expanded distribution, and launches of pharmaceutical brands; more than 100 brands were on the platform.
- Revenue share expense was $2.27 million in Q3 and $6.51 million year to date. Management said greater scale in brand messaging improved margins, partly because those products have a significant fixed-cost component.
- Operating expenses rose year over year, notably from salaries and benefits and stock-based compensation. Nine-month stock-based compensation was approximately $1.72 million, versus $497,000 in 2017.
- At September 30, cash and cash equivalents were $13.52 million, versus $5.12 million at December 31, 2017. Current assets were $18.89 million and current liabilities $2.56 million, yielding working capital of approximately $16.33 million and a 7.4 current ratio.
- Operating cash flow was a use of $140,206 for the first nine months, compared with a $1.49 million use in 2017. Management cited higher receivables and lower revenue-share payables; it reported approximately $1.1 million of positive operating cash flow in Q3. Investing activities used $79,782.
- Financing provided $8.62 million, principally from a May equity offering of $9.0 million gross and approximately $8.16 million net, plus option exercises. The balance sheet reports no interest expense and no borrowings; total liabilities were $2.56 million, all presented as current liabilities.
Material changes and notable items
- In May 2018, the company completed a 1-for-3 reverse stock split and listed on the Nasdaq Capital Market in June. It issued 1,666,669 shares for the equity raise; 11,970,976 shares were outstanding at September 30 and 12,013,682 at October 31.
- In March, OptimizeRx issued 100,000 shares valued at $447,000 to settle amounts due to a WPP subsidiary and terminate a co-marketing agreement. WPP owned approximately 18% of the company; revenue billed through WPP-owned agencies is classified as related-party revenue. Related-party revenue was $1.42 million in Q3 and $4.68 million year to date.
- In October, after quarter-end, the company acquired CareSpeak Communications for $6.0 million plus estimated working capital of $91,411. $500,000 of the purchase price was paid in stock. Further cash payments of up to $3.0 million may be due under an earnout tied to CareSpeak product revenue targets for 2019 and 2020.
- ASC 606 adoption had an immaterial reported impact. The company said nine-month 2018 revenue would have been $151,514 higher without the standard; Q3 revenue would have been $7,252 higher. Almost all of the shifted revenue was expected to be recognized by year-end.
Outlook, risks, and contingencies
- Management targeted gross margin of at least 55% by Q4 2018, said it achieved that level in Q2 and Q3, and focused on maintaining or improving margins. It cautioned that product mix can cause quarterly variation.
- Management expected continued quarterly profitability and positive operating cash flow for the balance of 2018, while warning growth-related costs could cause a quarterly loss; CareSpeak acquisition costs could affect Q4. It expected operating expenses to rise slightly quarter to quarter but decline as a percentage of revenue.
- Management said the equity proceeds were expected to fund operating needs and growth without additional capital in the short or long term, although acquisitions or strategic opportunities could require capital. These statements are forward-looking and subject to risks including economic and regulatory changes, competition, capital availability, and accounting changes.
- No material pending legal proceedings or off-balance-sheet arrangements were reported. The company said disclosure controls were effective and there were no material changes in internal control over financial reporting. ASC 606 adoption was immaterial; the company planned to adopt lease standard ASU 2016-02 in Q1 2019 and anticipated no material impact to operating results, while noting the ultimate effect depends on its lease portfolio.
Important facts for investors to verify
- Whether revenue growth, customer and brand expansion, and distribution-channel growth continued after Q3, and how much revenue is concentrated in related-party channels.
- Whether improved gross margins and management’s profitability and operating-cash-flow expectations were sustained, given rising operating expenses and receivables.
- CareSpeak’s integration, purchase accounting, revenue performance against earnout thresholds, and potential additional payments.
- The effect of equity issuance, option and warrant exercises, and stock-based compensation on dilution and future expenses.
- The filing provides no detailed revenue breakdown by service or a quantified full-year revenue forecast; management’s expectations are qualitative.