OptimizeRx(OPRX) - 2023 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements This section presents OptimizeRx Corporation's unaudited condensed consolidated financial statements as of June 30, 2023, highlighting decreases in cash and total assets, a slight revenue decline, and an increased net loss. Condensed Consolidated Balance Sheets As of June 30, 2023, total assets decreased to $121.3 million from $134.7 million, driven by reduced cash, while liabilities and stockholders' equity also declined Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | June 30, 2023 (USD) | December 31, 2022 (USD) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $9,808,330 | $18,208,685 | | Total current assets | $85,074,023 | $98,576,635 | | Total Assets | $121,324,874 | $134,651,185 | | Liabilities & Equity | | | | Total current liabilities | $5,509,715 | $8,395,876 | | Total Liabilities | $5,509,715 | $8,540,408 | | Total Stockholders' Equity | $115,815,159 | $126,110,777 | Condensed Consolidated Statements of Operations For the three and six months ended June 30, 2023, net revenues slightly decreased, leading to a widened net loss of $4.2 million for the quarter and $10.6 million for the six-month period Statement of Operations Summary (Unaudited) | Metric | Q2 2023 (USD) | Q2 2022 (USD) | H1 2023 (USD) | H1 2022 (USD) | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $13,818,166 | $13,978,665 | $26,821,076 | $27,710,195 | | Gross Profit | $7,825,021 | $8,989,949 | $15,258,310 | $17,091,621 | | Loss from Operations | ($4,881,868) | ($3,908,530) | ($11,945,054) | ($7,669,632) | | Net Loss | ($4,161,449) | ($3,884,714) | ($10,559,163) | ($7,645,812) | | Loss Per Share (diluted) | ($0.24) | ($0.21) | ($0.62) | ($0.42) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2023, operating activities used $2.5 million in cash, a reversal from the prior year, with overall cash and equivalents decreasing by $8.4 million due to financing activities Cash Flow Summary for the Six Months Ended June 30 (Unaudited) | Activity | 2023 (USD) | 2022 (USD) | | :--- | :--- | :--- | | Net Cash (Used in) / Provided by Operating Activities | ($2,454,489) | $4,388,372 | | Net Cash Provided by / (Used in) Investing Activities | $1,674,215 | ($2,186,592) | | Net Cash (Used in) / Provided by Financing Activities | ($7,620,081) | $509,420 | | Net (Decrease) / Increase in Cash | ($8,400,355) | $2,711,200 | Notes to Condensed Consolidated Financial Statements These notes detail the company's digital health platform business, revenue recognition policies, a $15 million share repurchase program, and $7.9 million in stock-based compensation for the first half of 2023 - The company is a digital health technology company connecting life sciences organizations, healthcare providers, and patients, with a network reaching over 60% of U.S. healthcare providers[21] - The majority of revenue is recognized over time as solutions are provided. For the six months ended June 30, 2023, $25.6 million was recognized over time, while $1.2 million was recognized at a point in time[32][33] - In March 2023, the Board authorized a new share repurchase program for up to $15 million. During Q2 2023, 526,999 shares were repurchased for $7.5 million[46] - Stock-based compensation expense for the six months ended June 30, 2023, was $7.9 million ($3.1 million for options, $4.8 million for RSUs)[48][50] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 3% revenue decrease for H1 2023, attributing it to non-core business shortfalls and macroeconomic pressures, leading to a gross margin decline and increased operating expenses, despite strong liquidity Overview The company operates a digital health technology platform, employing a "land and expand" strategy and leveraging AI, while facing revenue concentration risk with approximately 100 pharmaceutical clients - The company employs a 'land and expand' strategy, focusing on growing its existing client base and shifting towards enterprise-level engagements[73] - Management is focused on optimizing its solution portfolio and leveraging its AI-powered real-world data solution to derive additional revenue[73] - Revenue is concentrated among approximately 100 pharmaceutical companies, making the loss of a large customer a significant risk[74] Key Performance Indicators Key performance indicators for the twelve months ending June 30, 2023, showed declines in net revenue retention to 89% and average revenue per top 20 pharma manufacturer, attributed to macroeconomic factors Key Performance Indicators (Rolling Twelve Months Ended June 30) | Indicator | 2023 | 2022 | | :--- | :--- | :--- | | Average revenue per top 20 pharma manufacturer (USD) | $1,972,308 | $2,452,836 | | Percent of top 20 pharma manufacturers that are customers (%) | 90% | 90% | | Percent of total revenue from top 20 pharma manufacturers (%) | 58% | 69% | | Net revenue retention (%) | 89% | 113% | | Revenue per average full-time employee (USD) | $559,646 | $661,319 | - The decline in KPIs such as net revenue retention and average revenue per top manufacturer is attributed to macroeconomic factors that slowed customer spending and prolonged sales cycles[79][82] Results of Operations For the six months ended June 30, 2023, net revenue decreased 3% to $26.8 million, gross margin fell due to increased cost of revenues, and operating expenses rose 10%, widening the net loss to $10.6 million Results of Operations for the Six Months Ended June 30 | Metric | 2023 (USD) | 2022 (USD) | | :--- | :--- | :--- | | Net Revenue | $26,821,076 | $27,710,195 | | Gross Profit | $15,258,310 | $17,091,621 | | Gross Margin % | 56.9% | 61.7% | | Total Operating Expenses | $27,203,364 | $24,761,253 | | Net Loss | ($10,559,163) | ($7,645,812) | - The decrease in revenue was primarily due to a shortfall in certain non-core business lines and longer than expected medical, legal, and regulatory reviews, pushing revenue into the second half of the year[87] - The increase in cost of revenue as a percentage of revenue was a result of solution and channel mix, with a decrease in activity flowing through lower-cost channels[88][89] - The increase in operating expenses was mostly due to a rise in other general and administrative expenses, resulting from an increase in headcount and other investments to support growth initiatives[92] Liquidity and Capital Resources As of June 30, 2023, the company had $79.6 million in working capital, but experienced a $2.5 million net cash outflow from operations, primarily due to net loss and stock repurchases - As of June 30, 2023, the company had working capital of approximately $79.6 million and a current ratio of 15.4 to 1[94] - Net cash used in operating activities was $2.5 million for H1 2023, compared to $4.4 million provided in H1 2022[96] - Cash used for financing activities was $7.6 million, mostly related to a $7.5 million stock repurchase program[98] - The company has commitments for future minimum payments of $13.3 million related to revenue sharing agreements, which will be reflected in cost of revenues from 2023 through 2025[102] Quantitative and Qualitative Disclosures About Market Risk This section is noted as not applicable - Not applicable[103] Controls and Procedures Management concluded that as of June 30, 2023, disclosure controls and procedures were not effective due to a material weakness in internal controls over financial reporting, for which a remediation plan is underway - Management concluded that as of the end of the reporting period, disclosure controls and procedures were not effective at a reasonable assurance level[105] - The ineffectiveness is due to a material weakness in internal controls over financial reporting disclosed in the 2022 Annual Report on Form 10-K[105] - A remediation plan is underway, which involves requiring SOC-1, Type 2 reports from third-party service organizations or conducting direct evaluations of their controls[107][110] PART II — OTHER INFORMATION Legal Proceedings The company reports that it is not currently a party to any material pending legal proceedings - The company is not a party to any material pending legal proceeding[112] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - There have been no material changes in risk factors from those reported in the Annual Report on Form 10-K for the year ended December 31, 2022[113] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase activity, including the March 2023 authorization of a $15 million program and the repurchase of 526,000 shares for $7.5 million in Q2 2023 - On March 14, 2023, the Board of Directors authorized the repurchase of up to $15 million of the Company's outstanding common stock, expiring March 12, 2024[114] Issuer Purchases of Equity Securities (Q2 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share (USD) | Maximum Dollar Value Remaining for Purchase (USD) | | :--- | :--- | :--- | :--- | | 4/1/23 - 4/30/23 | — | $— | $15,000,000 | | 5/1/23 - 5/31/23 | 132,000 | $13.15 | $13,267,253 | | 6/1/23 - 6/30/23 | 394,000 | $14.65 | $7,488,116 | Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL data files - Exhibits filed include CEO/CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906, and Inline XBRL documents[117]