OptimizeRx(OPRX) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1: Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements for OptimizeRx Corporation for the three months ended March 31, 2023 and 2022, including the balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with their accompanying notes Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (as of March 31, 2023 vs. December 31, 2022) | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Assets | | | | Total Current Assets | $95,881,440 | $98,576,635 | | Total Assets | $131,692,540 | $134,651,185 | | Liabilities & Stockholders' Equity | | | | Total Current Liabilities | $7,605,541 | $8,395,876 | | Total Liabilities | $7,728,768 | $8,540,408 | | Total Stockholders' Equity | $123,963,772 | $126,110,777 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (Three Months Ended March 31, 2023 vs. 2022) | Metric | March 31, 2023 | March 31, 2022 | Change (YoY) | | :------------------------------------------------ | :------------- | :------------- | :----------- | | Net Revenue | $13,002,910 | $13,731,530 | -5.3% | | Cost of Revenues | $5,569,621 | $5,629,858 | -1.1% | | Gross Profit | $7,433,289 | $8,101,672 | -8.2% | | Operating Expenses | $14,496,475 | $11,862,773 | +22.2% | | Loss from Operations | $(7,063,186) | $(3,761,101) | +87.8% | | Interest Income | $665,472 | $3 | N/A | | Net Loss | $(6,397,714) | $(3,761,098) | +70.1% | | Loss per Share – Basic & Diluted | $(0.37) | $(0.21) | +76.2% | Condensed Consolidated Statements of Changes in Stockholders' Equity Changes in Stockholders' Equity (Three Months Ended March 31, 2023) | Item | Amount | | :-------------------------- | :------------- | | Balance January 1, 2023 | $126,110,777 | | Stock based compensation | $4,380,503 | | Issuance of common stock | $(129,800) | | Net loss | $(6,397,714) | | Balance March 31, 2023 | $123,963,772 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31, 2023 vs. 2022) | Activity | March 31, 2023 | March 31, 2022 | | :------------------------------------------ | :------------- | :------------- | | Net cash (used in) / provided by operating activities | $(86,330) | $4,080,244 | | Net cash used in investing activities | $(1,548,894) | $(65,751) | | Net cash (used in) / provided by financing activities | $(129,794) | $258,128 | | Net (decrease) / increase in cash and cash equivalents | $(1,765,018) | $4,272,621 | | Cash and cash equivalents - End of Period | $16,443,667 | $88,954,391 | Notes to Condensed Consolidated Financial Statements NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION - OptimizeRx Corporation is a digital health technology company that facilitates care-focused engagement between life sciences organizations, healthcare providers, and patients, connecting over 60% of U.S. healthcare providers[21] NOTE 2 – NEW ACCOUNTING STANDARDS - The adoption of ASU Topic 2021-08 (Business Combinations) effective January 1, 2023, did not materially affect the company's financial position, results of operations, or cash flows[25] NOTE 3 – CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS Held-to-Maturity United States' Treasury Bills | Date | Amount | | :---------------- | :------------- | | March 31, 2023 | $57.3 million | | December 31, 2022 | $55.9 million | Maturity dates for these investments are between April 2023 and June 2023 NOTE 4 – REVENUES Deferred Revenue Activity (Quarter Ended March 31, 2023) | Item | Amount | | :---------------------- | :------------- | | Balance January 1, 2023 | $164,309 | | Revenue recognized | $(8,778,893) | | Amount collected | $9,349,724 | | Balance March 31, 2023 | $735,140 | Disaggregation of Revenue (Three Months Ended March 31, 2023 vs. 2022) | Revenue Type | March 31, 2023 | March 31, 2022 | | :-------------------------- | :------------- | :------------- | | Recognized over time | $12,423,100 | $12,902,664 | | Recognized at a point in time | $579,810 | $828,867 | | Total Revenue | $13,002,910 | $13,731,530 | NOTE 5 – LEASES Lease Cost Components (Three Months Ended March 31, 2023 vs. 2022) | Lease Type | March 31, 2023 | March 31, 2022 | | :------------------ | :------------- | :------------- | | Operating lease cost | $24,696 | $28,023 | | Short-term lease cost | $8,063 | $8,092 | | Total lease cost | $32,759 | $36,115 | Future Minimum Lease Payments (as of March 31, 2023) | Year | Amount | | :--- | :------------- | | 2023 | $73,860 | | 2024 | $80,253 | | 2025 | $70,224 | | Total | $224,337 | | Less: discount | $11,823 | | Total lease liabilities | $212,514 | - The weighted average remaining lease term for operating leases is 2.5 years, with a weighted average discount rate of 4.5% as of March 31, 2023[35] NOTE 6 – STOCKHOLDERS' EQUITY Common Stock Outstanding (Net of Treasury Shares) | Date | Shares | | :---------------- | :------------- | | March 31, 2023 | 17,117,113 | | December 31, 2022 | 17,074,173 | Common Stock Issuance from Option Exercise | Period | Shares Issued | Proceeds | | :-------------------------------- | :------------ | :------------- | | Three months ended March 31, 2023 | 9,668 | $40,606 | | Three months ended March 31, 2022 | 28,006 | $258,128 | - The Board authorized a new share repurchase program of up to $15 million during the quarter ended March 31, 2023, but no shares were repurchased under this program in the period[40] - In 2022, the company repurchased 1,214,398 shares for $20,021,830[41] NOTE 7 – STOCK BASED COMPENSATION Stock-Based Compensation Expense (Three Months Ended March 31, 2023 vs. 2022) | Type | March 31, 2023 | March 31, 2022 | | :------------------ | :------------- | :------------- | | Stock Options | $1,466,694 | $905,744 | | Restricted Stock Units | $2,913,809 | $2,268,354 | | Total | $4,380,503 | $3,174,098 | - Remaining expense for unvested options is $11,021,446 over 1.91 years, and for restricted stock units is $14,830,343 over 1.9 years[42][44] NOTE 8 – EARNINGS (LOSS) PER SHARE Net Loss Per Share (Three Months Ended March 31, 2023 vs. 2022) | Metric | March 31, 2023 | March 31, 2022 | | :------------------------------------------------ | :------------- | :------------- | | Net Loss | $(6,397,714) | $(3,761,098) | | Weighted Average Shares Outstanding (Basic & Diluted) | 17,094,676 | 17,878,068 | | Net Loss Per Share (Basic & Diluted) | $(0.37) | $(0.21) | - Diluted EPS calculation was anti-dilutive for both periods, excluding 93,804 potentially issuable shares in 2023 and 298,697 in 2022[51] NOTE 9 – CONTINGENCIES - The Company is not currently involved in any material legal proceedings[52] NOTE 10 – INCOME TAXES - No federal income tax expense or benefit was recorded due to net operating loss carry-forwards of approximately $21.5 million as of December 31, 2022, and a valuation allowance against net deferred tax assets[53] NOTE 11 – SUBSEQUENT EVENTS - On April 18, 2023, Mr. Febbo forfeited his 2021 equity grant, and subsequently received a new grant of options and restricted stock units valued at $2.5 million, to be accounted for as a modification under ASC 718[54] - From April 1 to May 7, 2023, 10,595 shares of common stock were issued due to the vesting of restricted stock units[55] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition for the three months ended March 31, 2023, highlighting a decrease in net revenue and an increase in net loss, primarily due to macroeconomic pressures and increased operating expenses, also discussing business strategy, key performance indicators, liquidity, and critical accounting estimates Forward-Looking Statements - The report contains forward-looking statements subject to risks and uncertainties, including seasonal trends, technology scaling, customer support, customer concentration, regulatory compliance, competition, and macroeconomic factors[57][58] Overview - OptimizeRx is a digital health technology company connecting life sciences, healthcare providers, and patients to improve medication adherence, expanding beyond financial messages to include brand messaging, therapeutic support, and patient engagement services[61][62] - The company employs a 'land and expand' strategy, focusing on growing existing client bases, shifting towards enterprise-level engagements, and broadening its platform with solutions like TelaRep™ and AI-powered real-world data[63] - Revenue is concentrated among approximately 100 pharmaceutical companies, with a risk of negative impact from the loss of larger customers[64] Seasonality - The pharmaceutical brand marketing industry experiences seasonal trends, with the fourth quarter typically having the largest marketing allocation and the first quarter reflecting lower activity and revenue[65] Impact of Macroeconomic Events - Macroeconomic events such as rising inflation and interest rates, high employee turnover in the pharmaceutical industry, and fewer U.S. drug approvals have led to economic uncertainty, potentially impacting business growth and customer spending[66] Key Performance Indicators - The definition of 'top 20 pharmaceutical manufacturers' has been updated based on Fierce Pharma's 2022 revenue list, with prior periods restated for comparison[67] Key Performance Indicators (Rolling Twelve Months Ended March 31) | Metric | 2023 | 2022 | Change | | :---------------------------------------------------- | :----------- | :----------- | :----- | | Average revenue per top 20 pharmaceutical manufacturer | $1,993,755 | $2,614,054 | -23.8% | | Percent of top 20 pharmaceutical manufacturers that are customers | 90% | 90% | 0% | | Percent of total revenue attributable to top 20 pharmaceutical manufacturers | 58% | 74% | -16% | | Net revenue retention | 86% | 124% | -38% | | Revenue per average full-time employee | $605,113 | $733,275 | -17.5% | - Decreases in average revenue per top 20 pharmaceutical manufacturer and net revenue retention are attributed to macroeconomic factors causing customers to slow spending and prolong sales cycles[69][73] - Revenue from non-top 20 pharmaceutical manufacturers increased faster than overall revenue, leading to a decrease in the percentage of total revenue from top 20 manufacturers[72] - Revenue per average full-time employee declined due to slower revenue growth and a higher average number of FTEs[74] Results of Operations for the Three Months Ended March 31, 2023 and 2022 Consolidated Statements of Operations Summary (Three Months Ended March 31, 2023 vs. 2022) | Metric | 2023 (in thousands) | % of Net Revenue | 2022 (in thousands) | % of Net Revenue | | :-------------------------------- | :------------------ | :--------------- | :------------------ | :--------------- | | Net revenue | $13,003 | 100.0% | $13,732 | 100.0% | | Cost of revenues | $5,570 | 42.8% | $5,630 | 41.0% | | Gross profit | $7,433 | 57.2% | $8,102 | 59.0% | | Operating expenses | $14,496 | 111.5% | $11,863 | 86.4% | | Loss from operations | $(7,063) | (54.3)% | $(3,761) | (27.4)% | | Other income | $665 | 5.1% | $0 | 0.0% | | Loss before provision for income taxes | $(6,398) | (49.2)% | $(3,761) | (27.4)% | | Net loss | $(6,398) | (49.2)% | $(3,761) | (27.4)% | - Net revenue decreased by 5% to $13.0 million, primarily due to macroeconomic pressures affecting customers[77] - Cost of revenues remained consistent at $5.6 million, but increased as a percentage of revenue to 42.8% (from 41.0%) due to solution and channel mix[78] - Gross margin decreased due to a lower percentage of activity flowing through lower-cost channels[79] - Operating expenses increased by 22% to $14.5 million, driven mainly by a rise in non-cash stock-based compensation and other general and administrative expenses due to increased headcount and growth investments[80][81] - Net loss increased to $6.4 million from $3.8 million in the prior year, reflecting the discussed revenue decrease and expense increases[82] Liquidity and Capital Resources Summary Cash Flow Data (Three Months Ended March 31, 2023 vs. 2022) | Activity | March 31, 2023 | March 31, 2022 | | :------------------------------------------ | :------------- | :------------- | | Net cash (used in) / provided by operating activities | $(86,330) | $4,080,244 | | Net cash used in investing activities | $(1,548,894) | $(65,751) | | Net cash (used in) / provided by financing activities | $(129,794) | $258,128 | | Net (decrease) / increase in cash and cash equivalents | $(1,765,018) | $4,272,621 | - Working capital decreased to $88.3 million (current ratio 13:1) at March 31, 2023, from $90.2 million (current ratio 11.7:1) at December 31, 2022, primarily due to timing of prepaid services and investment in reporting infrastructure[83] - Operating activities used $0.1 million cash in Q1 2023, a significant shift from $4.1 million provided in Q1 2022, despite noncash expenses and working capital from receivables offsetting the net loss[85] - Investing activities used $1.5 million, mainly due to $56.9 million in treasury bill purchases (offset by $55.6 million redemptions) to earn higher interest[86] - Financing activities used $0.1 million, primarily for employee withholding taxes on restricted stock units, partially offset by stock option exercise proceeds[87] - Management believes current funds and operations will be sufficient for the next 12 months, but may seek additional financing for acquisitions or capital expenditures[88] Critical Accounting Estimates - The company's critical accounting estimates are consistent with those described in its 2022 Annual Report on Form 10-K[89] Recently Issued Accounting Pronouncements - The adoption of ASU Topic 2021-08 (Business Combinations) on January 1, 2023, had no material effect on the company's financial statements[90] Off Balance Sheet Arrangements - As of March 31, 2023, the Company has commitments for future minimum payments of $14.9 million for messaging capabilities through 2025, which will be reflected in cost of revenues[91] Item 3: Quantitative and Qualitative Disclosures About Market Risk This section states that there are no material quantitative or qualitative disclosures about market risk applicable to the company - The company has no applicable quantitative and qualitative disclosures about market risk[92] Item 4: Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were not effective as of March 31, 2023, due to a previously disclosed material weakness in internal controls over financial reporting, with remediation efforts underway focusing on obtaining SOC-1, Type 2 reports from third-party service organizations or conducting direct evaluations - Disclosure controls and procedures were deemed not effective as of March 31, 2023, due to a material weakness in internal controls over financial reporting, as disclosed in the 2022 Annual Report on Form 10-K[94] - Management believes the consolidated financial statements fairly present the financial condition, results of operations, and cash flows due to additional analysis and procedures performed to address the material weakness[95] - Remediation plans include requiring SOC-1, Type 2 reports from third-party service organizations or directly evaluating their control environments through inquiry and substantive testing[96][99] - No other material changes in internal control over financial reporting occurred during the quarter ended March 31, 2023[97] PART II — OTHER INFORMATION Item 1: Legal Proceedings The company is not currently involved in any material legal proceedings - The Company is not a party to any material pending legal proceeding[102] Item 1A: Risk Factors There have been no material changes to the risk factors previously reported in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes to risk factors from the Annual Report on Form 10-K for the year ended December 31, 2022[103] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds The Board authorized a new share repurchase program of up to $15 million on March 14, 2023, expiring by March 12, 2024, with no shares repurchased under this program during the quarter ended March 31, 2023 - The Board authorized a new share repurchase program of up to $15 million on March 14, 2023, with an expiration date of March 12, 2024[104] - No shares were repurchased under this program during the quarter ended March 31, 2023[105] Item 3: Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred[106] Item 4: Mine Safety Disclosure This item is not applicable to the company - Mine Safety Disclosure is not applicable to the company[107] Item 5: Other Information No other information is reported in this section - No other information is reported[108] Item 6: Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate bylaws, executive severance plans, employment agreements, and certifications - Exhibits include Third Amended and Restated Bylaws, Executive Severance Plan, Fourth Addendum to Employment Agreement with William J. Febbo, and various certifications (CEO, CFO) as per Sarbanes-Oxley Act[109]