OptimizeRx(OPRX) - 2021 Q4 - Annual Report

PART I Business OptimizeRx is a digital health technology company connecting life sciences, healthcare providers, and patients to improve medication adherence Overview OptimizeRx operates a digital health platform integrated into point-of-care networks to enhance medication access and adherence for patients - The company's core business is a digital health platform that connects life sciences organizations, healthcare providers (HCPs), and patients at the point of care[20] - The platform reaches over 60% of U.S. HCPs and is designed to help patients start and stay on their medications[20] - Operations are conducted through wholly-owned subsidiaries in the U.S. (Michigan, Delaware, New Jersey), Croatia, and Israel[21] 2021 Company Highlights In 2021, OptimizeRx achieved record net revenue of $61.3 million, returned to profitability, and expanded its platform capabilities 2021 Financial Highlights | Metric | 2021 Value | Change vs 2020 | | :--- | :--- | :--- | | Net Revenue | $61.3 million | +42% | | Q4 Net Revenue | $20.3 million | +24% | | Net Income | $0.4 million | From $2.2M Loss | | Cash Flow from Operations | $0.7 million | Positive | - Completed a public offering in February 2021, raising an additional $70.7 million in capital[24] - Launched a new Therapy Initiation Workflow to support specialty medications and an Evidence-Based Physician Engagement solution, which was recognized as an innovative product by PM 360 magazine[24] - The company was added to the S&P SmallCap 600 Index in October 2021[24] Principal Solutions and Applications The company's integrated platform offers solutions like financial messaging, patient engagement, and evidence-based physician engagement to support medication access - Financial Messaging: A virtual "Patient Support Center" within EMR/e-Prescribe systems for accessing co-pay coupons and vouchers[24] - Patient Engagement: Acquired capabilities from CareSpeak and RMDY Health provide interactive mobile messaging to improve medication adherence and care coordination[26] - Evidence-Based Physician Engagement: Uses AI and real-world data (RWD) to help HCPs identify qualified patients for specific therapies and monitor adherence[26] - Therapy Initiation Workflow: A digital solution to accelerate patient access to specialty medications by simplifying enrollment, benefits verification, and prior authorization[26] Sales, Marketing, and Operations The company shifted to enterprise sales, enhanced marketing, expanded its network, and migrated its core technology to AWS for improved scalability - Sales strategy is shifting from individual solutions to enterprise platform deals to increase revenue per customer and predictability[25] - Marketing strategy focused on strategic content resulted in a 10x increase in engagement and higher brand visibility through organic channels[27] - Core technology platforms have been moved to Amazon Web Services (AWS) to support growth and improve efficiency[30] - The company is pursuing full Enterprise HITRUST Certification in 2022 to enhance security and compliance[31] Competition, IP, and Employees OptimizeRx competes in digital health, holds 3 patents, and employed 97 full-time staff as of December 31, 2021, with a focus on diversity - The primary direct competitor for the financial messaging solution is ConnectiveRx[34] - As of December 31, 2021, the company held 3 patents and several pending applications, along with numerous trademarks like OPTIMIZERx, CareSpeak, and RMDY[35][36] - As of December 31, 2021, the company had 82 full-time employees in the U.S. and 15 full-time international employees in Israel and Croatia[38] - In 2021, the company introduced a Diversity, Equity & Inclusion Committee and committed to the Parity Pledge, pledging to interview at least one qualified woman and underrepresented minority for every open role at the VP level or higher[39] Risk Factors The company faces risks including historical losses, customer concentration, regulatory compliance, cybersecurity threats, and stock price volatility Risks Relating to Our Business Business risks include historical losses, high customer and partner concentration, and exposure to complex healthcare regulatory compliance - While profitable in 2021, the company has a history of incurring losses due to investments in growth and acquisitions[43] - Revenues are concentrated in fewer than 50 customers. In 2021, one customer represented over 10% of revenues, compared to three such customers in 2020[50] - The company is reliant on its contracts with electronic prescribing platforms. In 2021, 53.9% of revenue was generated through its largest partner, up from 52.7% in 2020[53] - The company is subject to complex healthcare regulations, including HIPAA and federal/state anti-kickback laws, which could impose significant compliance costs and penalties for violations[57][59][60] Risks Related to IP, Technology, and Stock Risks include intellectual property protection, cybersecurity, system failures, stock price volatility, and anti-takeover provisions - The business depends on its ability to protect its intellectual property through patents and other measures; failure to do so could adversely affect its competitive position[74] - Cybersecurity incidents and IT system failures pose significant threats, potentially leading to data loss, business disruption, and reputational damage[76][77] - The common stock (OPRX) has been thinly traded historically and its market price is likely to be highly volatile[79][81] - The company has never paid dividends and does not expect to in the foreseeable future, meaning return on investment depends on stock price appreciation[82] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[87] Properties The company leases its principal executive offices in Michigan and an office in Croatia, with no owned real estate - The company does not own any real estate and leases all its office spaces[87] - Key leases include the headquarters in Rochester, MI (expires Nov 2023, with renewal option) and an office in Zagreb, Croatia (expires 2024)[88] Legal Proceedings The company reports no current legal proceedings - No current legal proceedings are reported[89] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[90] Information about Our Executive Officers This section provides background and business experience for the company's executive officers as of February 24, 2022 Executive Officers as of Feb 24, 2022 | Name | Age | Position | | :--- | :--- | :--- | | William J. Febbo | 53 | Chief Executive Officer | | Stephen L. Silvestro | 44 | Chief Commercial Officer | | Marion Odence-Ford | 57 | General Counsel and Chief Compliance Officer | | Edward Stelmakh | 56 | Chief Financial Officer and Chief Operations Officer | | Todd Inman | 66 | Chief Technology Officer | PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "OPRX", with no anticipated cash dividends in the foreseeable future - Common stock is traded on the Nasdaq Capital Market under the symbol "OPRX"[100] - The company has never declared or paid cash dividends and does not plan to in the foreseeable future[101] Management's Discussion and Analysis of Financial Condition and Results of Operations This section details the company's 2021 financial performance, including 42% revenue growth, profitability, and liquidity, alongside strategic shifts Overview and COVID-19 Update The company focuses on enterprise engagements and AI solutions, with COVID-19 increasing demand for digital health without adverse financial impact - Strategic focus is on shifting to enterprise-level engagements with recurring revenue streams to generate greater and more consistent revenues[105] - The COVID-19 pandemic increased demand for digital health solutions and did not negatively impact financial results in 2021[107][110] Key Performance Indicators Key performance indicators for 2021 show increased average revenue per top 20 pharma manufacturer and improved revenue per employee Key Performance Indicators (2021 vs. 2020) | KPI | 2021 | 2020 | | :--- | :--- | :--- | | Average revenue per top 20 pharma manufacturer | $2,484,557 | $1,945,650 | | Percent of top 20 pharma manufacturers as customers | 95% | 85% | | Percent of total revenue from top 20 pharma manufacturers | 77% | 76% | | Net revenue retention | 127% | 162% | | Revenue per average full-time employee | $729,674 | $614,378 | Results of Operations (2021 vs. 2020) In 2021, net revenue grew 42% to $61.3 million, gross margin improved to 58%, and the company achieved a net income of $0.4 million Annual Financial Performance | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Net Revenue | $61.3M | $43.3M | +42% | | Gross Margin | $35.6M | $24.1M | +48% | | Gross Margin % | 58% | 56% | +2 p.p. | | Operating Expenses | $35.3M | $26.2M | +34% | | Net Income (Loss) | $0.4M | ($2.2M) | N/A | Operating Expense Breakdown (in millions) | Expense Category | 2021 | 2020 | | :--- | :--- | :--- | | Compensation Expense | $17.9 | $13.7 | | Stock-based Compensation | $5.5 | $3.2 | | Depreciation and Amortization | $2.1 | $2.1 | | Data | $1.0 | $0.2 | | Other Expenses | $8.8 | $7.0 | | Total Operating Expense | $35.3 | $26.2 | - The increase in operating expenses was primarily driven by higher compensation from adding 27 net new employees and increased stock-based compensation due to a higher stock price and executive hiring[127][129] Quarterly Financial Information Quarterly results for 2021 show consistent sequential revenue growth, culminating in a strong Q4 with over $20.3 million in revenue 2021 Quarterly Results (in thousands) | Quarter | Revenues | Gross Profit | Net Income (Loss) | Diluted EPS | | :--- | :--- | :--- | :--- | :--- | | Q1 | $11,229 | $6,125 | $(637) | $(0.04) | | Q2 | $13,626 | $8,045 | $352 | $0.02 | | Q3 | $16,125 | $9,077 | $40 | $0.00 | | Q4 | $20,313 | $12,392 | $623 | $0.03 | 2020 Quarterly Results (in thousands) | Quarter | Revenues | Gross Profit | Net Income (Loss) | Diluted EPS | | :--- | :--- | :--- | :--- | :--- | | Q1 | $7,585 | $4,343 | $(2,204) | $(0.15) | | Q2 | $8,783 | $5,144 | $(1,077) | $(0.07) | | Q3 | $10,519 | $6,014 | $(283) | $(0.02) | | Q4 | $16,426 | $8,604 | $1,357 | $0.08 | Liquidity and Capital Resources As of December 31, 2021, the company had strong liquidity with $105.7 million in working capital, primarily from a $70.7 million stock offering Cash Flow Summary (in millions) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash from operating activities | $0.7 | $(6.3) | | Net cash used in investing activities | $(0.5) | $(0.1) | | Net cash from financing activities | $73.9 | $(1.9) | | Net increase (decrease) in cash | $74.2 | $(8.3) | - Working capital increased to $105.7 million at year-end 2021 from $22.9 million at year-end 2020[143] - Financing activities in 2021 were driven by a $70.7 million net proceed from an underwritten stock offering and $4.9 million from option exercises, partially offset by a $1.6 million payment for contingent consideration from prior acquisitions[147] Critical Accounting Policies Critical accounting policies involve significant judgment in revenue recognition, cost of revenues, stock-based compensation, and intangible asset impairment - Revenue Recognition: Revenue is recognized over time as messages are delivered. Contracts are generally less than one year. Setup fees are recognized over the life of the initial program[152][156] - Cost of Revenues: Primarily consists of revenue share paid to network partners, which is expensed at the time a message is distributed[159] - Intangible Assets & Goodwill: Intangibles are amortized on a straight-line basis. Goodwill and intangibles are evaluated for impairment when a triggering event occurs, and goodwill is tested annually. No impairment was recorded in 2020 or 2021[160][162] - Stock-based Compensation: Fair value is estimated at the grant date. The Black-Scholes model is used for options, and for market-based restricted stock units (RSUs), a Monte Carlo simulation is used[163][166] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2021 and 2020, including the independent auditor's unqualified opinion Report of Independent Registered Public Accounting Firm UHY LLP issued an unqualified opinion on the financial statements and internal controls, identifying revenue recognition as a critical audit matter - The auditor, UHY LLP, provided an unqualified (clean) opinion on the financial statements and the effectiveness of internal controls over financial reporting[174] - Revenue recognition was identified as a Critical Audit Matter, involving complex judgments regarding performance obligations and timing[182][183] Consolidated Financial Statements Consolidated financial statements show total assets increased to $141.0 million in 2021, with cash rising to $84.7 million and a shift to $0.4 million net income Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $84,682 | $10,517 | | Accounts receivable, net | $24,801 | $17,886 | | Total Current Assets | $115,113 | $32,859 | | Goodwill & Intangibles | $25,387 | $26,861 | | Total Assets | $140,985 | $60,328 | | Liabilities & Equity | | | | Total Current Liabilities | $9,369 | $10,028 | | Total Liabilities | $9,605 | $10,354 | | Total Stockholders' Equity | $131,380 | $49,974 | | Total Liabilities & Equity | $140,985 | $60,328 | Consolidated Statement of Operations Data (in thousands) | Account | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | | Revenue | $61,293 | $43,313 | | Gross margin | $35,638 | $24,105 | | Total operating expenses | $35,277 | $26,241 | | Income (loss) from operations | $361 | $(2,135) | | Net income (loss) | $378 | $(2,207) | | Diluted EPS | $0.02 | $(0.15) | Controls and Procedures Management and the independent auditor concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - Management concluded that both disclosure controls and procedures, and internal control over financial reporting, were effective as of December 31, 2021[320][323] - The company's independent registered public accounting firm, UHY LLP, audited and issued an unqualified opinion on the effectiveness of the internal control over financial reporting[324] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 proxy statement - Most information for this section is incorporated by reference from the 2022 Annual Meeting proxy statement[330] Executive Compensation Information on director and executive compensation is incorporated by reference from the 2022 proxy statement - All information for this section is incorporated by reference from the 2022 Annual Meeting proxy statement[331] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details equity compensation plans as of December 31, 2021, with over 1.18 million securities outstanding and 2.13 million available Equity Compensation Plan Information as of December 31, 2021 | Plan Category | Securities to be Issued (Options & RSUs) | Securities Available for Future Issuance | | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 1,183,750 | 2,132,791 | | Equity compensation plans not approved by security holders | - | - | | Total | 1,183,750 | 2,132,791 | Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2022 proxy statement - All information for this section is incorporated by reference from the 2022 Annual Meeting proxy statement[334] Principal Accountant Fees and Services Information on principal accountant fees and pre-approval policies is incorporated by reference from the 2022 proxy statement - All information for this section is incorporated by reference from the 2022 Annual Meeting proxy statement[334] PART IV Exhibits and Financial Statements Schedules This section lists financial statements and exhibits filed with the Form 10-K, including an index of all filed exhibits - This section provides an index of all financial statements and exhibits filed with the Form 10-K[336][337] Form 10-K Summary The company reports no Form 10-K summary - None[340]