OptimizeRx Corporation — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019; financial statements are unaudited. OptimizeRx provides digital health messaging through electronic health record platforms, connecting pharmaceutical companies with healthcare providers and supporting patient access and adherence.
Financial performance
| Metric | Q2 2019 | Q2 2018 | First half 2019 | First half 2018 |
|---|---|---|---|---|
| Revenue | $7.01 million | $5.10 million | $12.22 million | $9.21 million |
| Gross profit / margin | $4.32 million / 61.6% | $2.86 million / 56.1% | $7.95 million / 65.0% | $4.97 million / 54.0% |
| Operating expenses | $3.84 million | $2.59 million | $7.33 million | $4.88 million |
| Operating income | $480,043 | $273,597 | $612,208 | $82,401 |
| Net income | $406,617 | $280,509 | $413,146 | $91,330 |
| Diluted EPS | $0.03 | $0.02 | $0.03 | $0.01 |
| Operating cash flow | Not separately presented for the quarter | $808,200 | $(1,218,859) |
- Revenue grew 37% in Q2 and 33% in the first half, primarily from increased sales of messaging products. The company does not report revenue by service.
- Cost of revenue declined as a share of revenue, which management attributed to product mix, improved revenue-share contracts, and emphasis on higher-margin products.
- Operating expenses rose with hiring, growth initiatives, marketing, development and integration work, and amortization of CareSpeak acquisition assets.
Financial position and liquidity
- At June 30, cash and cash equivalents were $30.54 million, versus $8.91 million at December 31, 2018. Current assets were $38.59 million and current liabilities $5.67 million, giving working capital of approximately $32.9 million and a 6.8 current ratio.
- First-half investing cash use was $1.05 million, including $1.0 million paid toward a $1.5 million perpetual software license; the remaining $500,000 was payable in September 2019.
- Financing provided $21.86 million net cash in the first half. A June underwritten offering raised $23.00 million gross and $21.30 million net after offering costs.
- Total liabilities were $7.73 million. The filing reports lease obligations and contingent CareSpeak purchase consideration; it does not report conventional borrowings. Lease obligations were $620,872, and contingent purchase-price payables totaled $2.62 million, including $1.07 million current.
Outlook, risks, and notable items
- Management expected quarterly gross margins of at least 60% for the rest of 2019, continued quarterly profitability, and positive quarterly operating cash flow. It cautioned that growth-related one-time expenses could produce a loss in a particular quarter.
- Management expected operating expenses to remain at or somewhat above 2019 levels, while human-resource costs were not expected to rise as quickly as revenue. The company said it did not anticipate needing additional capital within 12 months, but acquisitions or strategic opportunities could require funding.
- The CareSpeak acquisition includes additional consideration tied to 2019 and 2020 revenue targets. Revaluation increased the liability and generated a $255,000 expense in the first half ($107,000 in Q2).
- Disclosure controls and procedures were deemed ineffective at June 30 due to unremediated material weaknesses in segregation of duties and financial-reporting IT systems. New accounting software was being implemented, with completion expected in Q3 2019; remediation had not yet been confirmed.
- No material pending litigation or off-balance-sheet arrangements were reported. The filing identifies economic, regulatory, capital availability, interest-rate, competitive, and accounting changes as risks. Management was evaluating new accounting standards, including credit-loss guidance effective for the company in 2020.
Important facts for investors to verify
- Whether revenue growth and the margin improvement continue, particularly against management’s 60% quarterly gross-margin expectation.
- Whether operating cash flow remains positive after working-capital movements and the remaining software-license payment.
- Progress in remediating the material weaknesses in financial reporting controls and implementing the new accounting system.
- Actual contingent consideration due under CareSpeak’s revenue targets and its effect on future expenses and cash needs.
- The impact of increased operating costs and share issuance: common shares outstanding increased from 12.04 million at year-end to 14.12 million at June 30.