UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For the quarterly period ended
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TABLE OF CONTENTS
| Page | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1: | Financial Statements (unaudited) | 1 |
| Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11 |
| Item 3: | Quantitative and Qualitative Disclosures About Market Risk | 17 |
| Item 4: | 17 | |
| PART II — OTHER INFORMATION | ||
| Item 1: | Legal Proceedings | 18 |
| Item 1A: | Risk Factors | 18 |
| Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 18 |
| Item 3: | Defaults Upon Senior Securities | 18 |
| Item 4: | Mine Safety Disclosure | 18 |
| Item 5: | Other Information | 18 |
| Item 6: | Exhibits | 18 |
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Our condensed consolidated financial statements included in this Form 10-Q are as follows:
1
OPTIMIZERX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| March 31, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Other Assets | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Security deposits and other assets | ||||||||
| Total Other Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable – trade | $ | $ | ||||||
| Accrued expenses | ||||||||
| Revenue share payable | ||||||||
| Current portion of lease obligations | ||||||||
| Deferred revenue | ||||||||
| Total Current Liabilities | ||||||||
| Non-Current Liabilities | ||||||||
| Lease liabilities, net of current portion | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies (See note 8) | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
OPTIMIZERx CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross margin | ||||||||
| Operating expenses | ||||||||
| Salaries, Wages, & Benefits | ||||||||
| Stock-based compensation | ||||||||
| Other general and administrative expenses | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income | ||||||||
| Interest income | ||||||||
| Loss before provision for income taxes | ( | ) | ( | ) | ||||
| Income tax benefit | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of shares outstanding – basic | ||||||||
| Weighted average number of shares outstanding – diluted | ||||||||
| Income (loss) per share – basic | $ | ( | ) | $ | ( | ) | ||
| Income (loss) per share – diluted | $ | ( | ) | $ | ( | ) | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
OPTIMIZERx CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
| Additional | ||||||||||||||||||||
| Common Stock | Paid in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance January 1, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Shares issued for stock options exercised | ||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance March 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Additional | ||||||||||||||||||||
| Common Stock | Paid in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance January 1, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Public offering of common shares, net of offering costs | ||||||||||||||||||||
| Shares issued as board compensation | ||||||||||||||||||||
| Shares issued for stock options exercised | ||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance March 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
OPTIMIZERx CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Stock issued for board service | ||||||||
| Provision for loss on accounts receivable | ||||||||
| Changes in: | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses and other assets | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Revenue share payable | ( | ) | ( | ) | ||||
| Accrued expenses and other liabilities | ( | ) | ( | ) | ||||
| Operating leases, net | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | ||||||||
| CASH FLOWS USED IN INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Purchase of intangible assets, including intellectual property rights | ( | ) | ( | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS PROVIDED BY FINANCING ACTIVITIES: | ||||||||
| Proceeds from public offering of common stock, net of offering costs | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Payment of contingent consideration | ( | ) | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | ||||||||
| CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Lease liabilities arising from right of use assets | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
OPTIMIZERx CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2022
NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include OptimizeRx Corporation and its wholly owned subsidiaries (collectively, the “Company”, “we”, “our”, or “us”).
We are a digital health technology company enabling
care-focused engagement between life sciences organizations, healthcare providers, and patients at critical junctures throughout the patient
care journey. Connecting over
The condensed consolidated financial statements for the three months ended March 31, 2022 and 2021 have been prepared by us without audit pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. In the opinion of management, all adjustments necessary to present fairly our financial position at March 31, 2022, and our results of operations, changes in stockholders’ equity, and cash flows for the three months ended March 31, 2022 and 2021, have been made. Those adjustments consist of normal and recurring adjustments. The condensed consolidated condensed balance sheet as of December 31, 2021, has been derived from the audited consolidated condensed balance sheet as of that date.
Certain information and note disclosures, including a detailed discussion about the Company’s significant accounting policies, normally included in our annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated condensed financial statements should be read in conjunction with a reading of the financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the U.S. Securities and Exchange Commission on February 28, 2022.
The results of operations for the three months ended March 31, 2022, are not necessarily indicative of the results to be expected for the full year.
NOTE 2 – NEW ACCOUNTING STANDARDS
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to improve consistent application and simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance. ASU 2019-12 is effective for annual and interim reporting periods beginning after December 15, 2020, with early adoption permitted. The Company adopted this standard effective January 1, 2021. The adoption of this standard did not have a material effect on our financial position, results of operations, or cash flows.
Not Yet Adopted
ASU Topic 2021-08 Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. The standard is effective for the Company’s fiscal year beginning January 1, 2023, with early adoption permitted. The Company is currently evaluating the effect of this pronouncement on its Consolidated Financial Statements, but it is not expected to have a material impact.
6
OPTIMIZERx CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2022
NOTE 3 – REVENUES
Under ASC 606, Revenue from Contracts with
Customers, we record revenue when earned, rather than when billed. From time to time, we may record revenue based on our revenue recognition
policies in advance of being able to invoice the customer, or we may invoice the customer prior to being able to recognize the revenue.
Included in accounts receivable are unbilled amounts of $
The Company has several signed contracts with
customers for the distribution of messaging, or other services, which include payment in advance. The payments are not recorded as revenue
until the revenue is earned under its revenue recognition policy. Deferred revenue was $
| Balance January 1, 2022 | $ | |||
| Revenue recognized | ( | ) | ||
| Amount collected | ||||
| Balance March 31, 2022 | $ |
The majority of our revenue is earned from life sciences companies, such as pharmaceutical and biotech companies, or medical device makers. A small portion of our revenue is earned from other sources, such as associations and technology companies. A break down is set forth in the table below.
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenue from: | ||||||||
| Life Science Companies | $ | $ | ||||||
| Other | ||||||||
| Total Revenue | $ | $ | ||||||
NOTE 4 – LEASES
We have operating leases for office space in two multitenant facilities with lease terms greater than 12 months, which are recorded as assets and liabilities on our condensed consolidated balance sheets. These leases include our corporate headquarters, located in Rochester, Michigan, and a technical facility in Zagreb, Croatia. We also had a lease on office space in Cranbury, New Jersey, which expired in January 2022. We did not renew the New Jersey lease. For leases that contain renewal options, we have only assumed renewal for the headquarters lease. Lease-related assets, or right-of-use assets, are recognized at the lease commencement date at amounts equal to the respective lease liabilities, adjusted for prepaid lease payments, initial direct costs, and lease incentives received. Lease-related liabilities are
7
OPTIMIZERx CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2022
NOTE 4 – LEASES (continued)
recognized at the present value of the remaining contractual fixed lease payments, discounted using our incremental borrowing rate. Amortization of the right of use assets is recognized as non-cash lease expense on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. Short term lease costs include month to month leases and occasional rent for transient meeting and office spaces in shared office space facilities.
For the three months ended March 31, 2022 and 2021, the Company’s lease cost consists of the following components, each of which is included in operating expenses within the Company’s condensed consolidated statements of operations:
| Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||
| Operating lease cost | $ | $ | ||||||
| Short-term lease cost | ||||||||
| Total lease cost | $ | $ | ||||||
The table below presents the future minimum lease payments to be made under operating leases as of March 31, 2022:
| As of March 31, 2022 | ||||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total | ||||
| Less: discount | ||||
| Total lease liabilities | $ | |||
The weighted average remaining lease term at March
31, 2022 for operating leases is
NOTE 5 – STOCKHOLDERS’ EQUITY
During the quarter ended March 31, 2022, we issued
a total of
During the quarter ended March 31, 2021, we issued
a total of
8
OPTIMIZERx CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2022
NOTE 5 – STOCKHOLDERS’ EQUITY (continued)
During the quarter ended March 31, 2021, in an
underwritten primary offering, we issued
During the quarter ended March 31, 2021, we issued
NOTE 6 – STOCK BASED COMPENSATION
We use the fair value method to account for stock-based
compensation, including both options and restricted stock units. We recorded $
We recorded $
NOTE 7 – EARNINGS (LOSS) PER SHARE
Basic earnings per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period.
The number of shares related to options and restricted stock units included in diluted EPS is based on the “Treasury Stock Method” prescribed in ASC 260-10, Earnings per Share. This method assumes the theoretical repurchase of shares using proceeds of the respective stock options exercised, and for restricted stock units, the amount of compensation cost attributed to future services which have not yet been recognized, and the amount of current and deferred tax benefit, if any, that would be credited to additional paid in capital upon the vesting of the restricted stock units, at a price equal to the issuer’s average stock price during the related earnings period. Accordingly, the number of shares includable in the calculation of EPS in respect of the stock options and restricted stock units is dependent on this average stock price and will increase as the average stock price increases.
9
OPTIMIZERx CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2022
NOTE 7 – EARNINGS (LOSS) PER SHARE (continued)
The following table sets forth the computation of basic and diluted net loss per share.
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Numerator | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Denominator | ||||||||
| Weighted average shares outstanding used in computing net loss per share | ||||||||
| Basic | ||||||||
| Effect of dilutive stock options, warrants, and stock grants | ||||||||
| Diluted | ||||||||
| Net Loss per share | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
No calculation of diluted earnings per share is
included for 2022 or 2021 as the effect of the calculation would be anti-dilutive. The number of common shares potentially issuable upon
the exercise of certain options that were excluded from the diluted loss per common share calculation in 2022 was
NOTE 8 – CONTINGENCIES
Litigation
The Company is not currently involved in any legal proceedings.
NOTE 9 – INCOME TAXES
As discussed in our annual report on Form 10-K
for the year ended December 31, 2021, we had net operating loss carry-forwards for federal income tax purposes of $
NOTE 10 – SUBSEQUENT EVENTS
In April 2022, we completed the acquisition of
substantially all of the assets of EvinceMed Corp., a privately held leading provider of delivering end-to-end automation for specialty
pharmaceutical transactions. This strategic acquisition allows us to help patients get access to the drugs they need by simplifying the
prescribing process for specialty products. The consideration was comprised of $
It is impractical to disclose a preliminary purchase price allocation of these assets at this time as we are currently in the process of completing that analysis.
10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements that relate to future events and expectations and, as such, constitute forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements, other than purely historical information, including estimates, projections, statements relating to our strategies, outlook, business and financial prospects, business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions.
Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Forward-looking statements are not guarantees of future performance. Although OptimizeRx believes that the expectations reflected in any forward-looking statements are based on reasonable assumptions, these expectations may not be attained and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks, uncertainties and changes in circumstances, many of which are beyond OptimizeRx’s control.
Forward-looking statements are subject to risks and uncertainties. Actual results could differ materially from those expressed in or implied by such forward-looking statements due to a variety of factors, including: disruptions to our business or the business of our customers due to the global pandemic; the inability to support our technology and scale our operations successfully, developing and implementing new and updated applications, features and services for our portals may be more difficult and expensive and take longer than expected; dependence on a concentrated group of customers; inability to maintain contracts with electronic prescription platforms, agreements with electronic prescription platforms and electronic health record systems being subject to audit; inability to attract and retain customers; inability to comply with laws and regulations that affect the healthcare industry; competition; developments in the healthcare industry; inability to manage growth; inability to identify suitable acquisition candidates, complete acquisitions or integrate acquisitions successfully; inability to attract and retain key employees; economic, political, regulatory and other risks arising from our international operations; inability to protect our intellectual property; cybersecurity incidents; reduction in the performance, reliability and availability of our network infrastructure; lack of a consistent active trading market for our common stock; and volatility in the market price of our common stock.
The risks and uncertainties included here are not exhaustive. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2021. Moreover, we operate in a rapidly changing and competitive environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors.
Further, it is not possible to assess the effect of all risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. In addition, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this report.
11
Overview
OptimizeRx Corporation is a digital health technology company incorporated in the State of Nevada. We enable care-focused engagement between life sciences organizations, healthcare providers, and patients at critical junctures throughout the patient care journey. Connecting over 60% of U.S. healthcare providers and millions of their patients through an intelligent technology platform embedded within a proprietary point-of-care network, OptimizeRx helps patients start and stay on their medications.
COVID-19
The COVID-19 pandemic has continued to create unprecedented challenges in the healthcare industry which has increased the demand for unique solutions ranging from access to accurate and timely information to increasing the accessibility of medications and care management. The COVID-19 pandemic did not have a material net impact on our financial statements during the first quarter of 2022. We continue to monitor the impact of COVID-19 on our operations and key stakeholders. The Company cannot reasonably predict the ultimate impact of the COVID-19 pandemic, including the extent of any impact on our business, results of operations and financial condition, which will depend on, among other things, the duration and spread of the pandemic, the impact of governmental regulations that have been, and may continue to be, imposed in response to the pandemic, the effectiveness of actions taken to contain or mitigate the outbreak, the acceptance, safety and efficacy of vaccines, and global economic conditions.
Company Highlights through April 2022
| 1. | Generated sales of $13.7 million for the first three months of 2022, a 22% increase over the same period in 2021. |
| 2. | Achieved positive cash flow from operations of $4.1 million. |
| 3. | Announced a definitive agreement to acquire the EvinceMed platform and related assets and closed on the transaction. |
| 4. | Introduced new key performance indicators to increase transparency and provide investors additional ways to chart our ability to execute against our “land and expand” strategy. |
| 5. | Published Company’s first Environmental, Social and Governance (ESG) Report |
Key Performance Indicators
We developed a number of key performance indicators in the first quarter of the year and intend to monitor these going forward, to evaluate our business, measure our performance, identify trends affecting our business and make strategic decisions.
Average revenue per top 20 pharmaceutical manufacturer. Average revenue per top 20 pharmaceutical manufacturer is calculated by taking the total revenue the company recognized through pharmaceutical manufacturers listed in Fierce Pharma’s “The top 20 pharma companies by 2020 revenue” over the last twelve months, divided by the total number of the aforementioned pharmaceutical manufacturers that our solutions helped support over that time period. The Company uses this metric to monitor its progress in “landing and expanding” with key customers within its largest customer vertical and believes it also provides investors with a transparent way to chart our progress in penetrating this important customer segment. The increase in the average in twelve months ended March 31, 2022 as compared to the twelve months ended March 31, 2021 is primarily the result of our focus on signing larger and more comprehensive deals and through supporting additional brands.
| Rolling Twelve Months Ended March 31 | ||||||||
| 2022 | 2021 | |||||||
| Average revenue per top 20 pharmaceutical manufacturer | $ | 2,549,836 | $ | 2,120,780 | ||||
12
Percent of top 20 pharmaceutical manufacturers that are customers. Percent of top 20 pharmaceutical manufacturers that are customers is calculated by taking the number of revenue generating customers that are pharmaceutical manufacturers listed in Fierce Pharma’s “The top 20 pharma companies by 2020 revenue” over the last 12 months, which is then divided by 20—which is the number of pharmaceutical manufacturers included in the aforementioned list. The Company uses this metric to monitor its progress in penetrating key customers within its largest customer vertical and believes it also provides investors with a transparent way to chart our progress in penetrating this important customer segment. The increase from twelve months ended March 31, 2021 to the twelve months ended March 31, 2022 reflects continued penetration into this core customer base and reflects two new top 20 pharma customers in the twelve months ended March 31, 2022.
| Rolling Twelve Months Ended March 31 | ||||||||
| 2022 | 2021 | |||||||
| Percent of top 20 pharmaceutical manufacturers that are customers | 95 | % | 85 | % | ||||
Percent of total revenue attributable to top 20 pharmaceutical manufacturers. Percent of total revenue attributable to top 20 pharmaceutical manufacturers is calculated by taking the total revenue the company recognized through pharmaceutical manufacturers listed in Fierce Pharma’s “The top 20 pharma companies by 2020 revenue” over the last twelve months, divided by our consolidated revenue over the same period. The Company uses this metric to monitor its progress in “landing and expanding” with key customers within its largest customer vertical and believes it also provides investors with a transparent way to chart our progress in penetrating this important customer segment. Our revenue from this core group of customers grew slightly slower than our overall revenue, enabling us to maintain a similar percentage of revenues from this group.
| Rolling Twelve Months Ended March 31 | ||||||||
| 2022 | 2021 | |||||||
| Percent of total revenue attributable to top 20 pharmaceutical manufacturers | 76 | % | 77 | % | ||||
Net revenue retention. Net revenue retention is a comparison of revenue generated from all customers in the previous twelve-month period to total revenue generated from the same customers in the following twelve-month period (i.e., excludes new customer relationships for the most recent twelve-month period). The Company uses this metric to monitor its ability to improve its penetration with existing customers and believes it also provides investors with a metric to chart our ability to increase our year-over-year penetration and revenue with existing customers. The retention rate in the twelve months ended March 31, 2021 was higher as a result of unplanned disruption to the industry caused by the Covid-19 pandemic. Our customers shifted funds previously designated for in-person events to digital marketing throughout the initial quarters of the pandemic. By the middle of 2021, while the pandemic continued, there was less disruption and customers shift towards digitals solutions became more normalized.
| Rolling Twelve Months Ended March 31 | ||||||||
| 2022 | 2021 | |||||||
| Net revenue retention | 124 | % | 161 | % | ||||
13
Revenue per average full-time employee. We define revenue per average full-time employee as total revenue over the last twelve months divided by the average number of employees over the last twelve months (i.e., the average between the number of FTEs at the end of the reported period and the number of FTEs at the end of the same period of the prior year). The Company uses this metric to monitor the productivity of its workforce and its ability to scale efficiently over time and believes the metric provides investors with a way to chart our productivity and scalability. Our revenue rate grew more quickly than our increase in the number of employees, allowing us to achieve more productivity. We were able to do this by taking advantage of the expandable technology infrastructure that we have built over the years.
| Rolling Twelve Months Ended March 31 | ||||||||
| 2022 | 2021 | |||||||
| Revenue per average full-time employee | $ | 733,275 | $ | 634,571 | ||||
Results of Operations for the Three Months Ended March 31, 2022 and 2021
Revenues
Our total revenue reported for the three months ended March 31, 2022 was approximately $13.7 million, an increase of 22% over the approximately $11.2 million from the same period in 2021. The increased revenue resulted from increases in sales in our messaging and access solutions.
We expect that our revenues will continue to grow for the balance of 2022 as a result of the new clients we secured in the first quarter of the year as well as those we expect to pick up for the remainder of the year. In addition, we believe that the foundations we laid in 2020 and 2021, including increased pharmaceutical brands, an increased distribution network, and strong growth in our messaging solutions will result in steady growth throughout the year.
Cost of Revenues
The cost of revenue increased from $5.1 million to $5.6 million primarily as a result of the increase in revenue. Our cost of revenues as a percentage of revenues decreased for the quarter ended March 31, 2021. This improvement was a result of solution mix, both as it relates to solutions and the partners through which the messages are delivered and increases in the type of services we provide that are not subject to revenue share. Additional discussion is included in the gross margin section below.
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cost of Revenues % | 41 | % | 45 | % | ||||
| Gross Margin % | 59 | % | 55 | % | ||||
Gross Margin
As reflected in the table above, our gross margin, which is the difference between our revenues and our cost of revenues, increased for the three months ended March 31, 2022, as a result of solution mix. In general, there has been an increase in the percentage of activity flowing through our lower cost channels compared with a year ago. Additionally, revenue increases in our access solutions and RWE includes a much higher percentage of program design, which carries a higher margin than the delivery of the actual messages. We expect our gross margin to remain relatively constant for the balance of the year.
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Operating Expenses
Operating expenses increased from approximately $6.8 million for the three months ended March 31, 2021 to approximately $11.8 million for the same period in 2022, an increase of approximately 75%. This increase in expense is due to investment in, and expansion of, our workforce to enable future growth. Stock based compensation, a noncash expense, had the greatest increase over prior year and is discussed in greater detail below.
The detail of expenditures by major category is reflected in the table below.
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Salaries, Wages, & Benefits | $ | 5,305,866 | $ | 3,580,817 | ||||
| Stock-Based Compensation | 3,174,098 | 707,153 | ||||||
| Contractors and Consultants | 426,626 | 299,376 | ||||||
| Travel | 118,709 | 9,830 | ||||||
| Board Compensation | 61,875 | 61,250 | ||||||
| Professional Fees | 488,926 | 321,220 | ||||||
| Investor Relations | 50,720 | 46,287 | ||||||
| Advertising and Promotion | 235,640 | 128,885 | ||||||
| Technology Infrastructure Costs | 609,629 | 213,279 | ||||||
| Integration Incentives | 425,556 | 318,558 | ||||||
| Data | 178,709 | 287,912 | ||||||
| Office, Facility, and Other | 314,879 | 292,028 | ||||||
| Depreciation and Amortization | 471,540 | 496,321 | ||||||
| Total Operating Expense | $ | 11,862,773 | $ | 6,762,916 | ||||
The increase in operating expense related to salaries, wages, and benefits and other human resource related costs is due to the expansion of our team to support additional growth. We expect our compensation expense to continue to increase on a quarter over quarter basis, although at a lower rate, due to the full impact of new hires during the first quarter as well as new hires in the pipeline. Since March 31, 2021, we have added to our staff in several key areas, including product development, sales, and IT, and the addition of our Chief Financial Officer/Chief Operations Officer. During the past 12 months we hired 20 net additional employees.
Stock-based compensation increased by $2.5 million from $0.7 million for the three months ended March 31, 2021 to $3.2 million for the same period in 2022. Stock based compensation is awarded to all full-time employees upon their start date as well as to certain key employees to encourage high performance. In the fourth quarter of 2021, we issued a significant market-based grant with a requisite service period of less than 3 years. The expense for the market-based award is amortized over the expected service period. The impact on first quarter expense is $1.5 million.
Contractors and consultants increased 43% as we have incurred consulting costs associated with building a scalable infrastructure.
Travel expenses increased significantly as a result of relaxed travel restrictions related to the Covid-19 pandemic.
Professional fees increased 52% over prior year primarily as a result of fees related to management’s assessment of internal controls and external audit fees due to Sarbanes-Oxley. Previously we were exempt from the Sarbanes-Oxley Act Section 404B requirement.
Our advertising and promotion increased over the same period prior year as we continue to invest in growth initiatives.
Technology infrastructure costs increased due to continued investment in our operating systems to facilitate new products as well as the implementation of additional software products to increase efficiency and information dissemination.
Integration incentives, which represent payments to partners for access and/or exclusivity, increased because of new agreements signed in the second half of 2021. These payments are usually made in lump sums and expensed over the term of the contracts. These expenses are an important part of our ability to expand our network.
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Data costs decreased 38% over the same period in the prior year as we have continued to evaluate our data vendors and partner with the most effective and valuable providers.
All other variances in the table above are the result of normal fluctuations in activity.
We expect our overall operating expenses to increase in the second quarter of 2022 as we further implement our business plan and expand our operations. However, we expect operating expense to increase at a slower rate throughout the balance of the year.
Net Loss
We had a net loss of approximately $3.8 million for the three months ended March 31, 2022, as compared to a net loss of approximately $0.6 million during the same period in 2021. The reasons and specific components associated with the change are discussed above. Overall, the increase in net loss resulted from significant investments made in our people and technology infrastructure.
Liquidity and Capital Resources
As of March 31, 2022, we had total current assets of approximately $112.7 million, compared with current liabilities of approximately $6.9 million, resulting in working capital of approximately $105.8 million and a current ratio of approximately 16 to 1. This represents an increase from our working capital of approximately $105.7 million and current ratio of 12 to 1 at December 31, 2021.
Our operating activities provided $4.1 million during the three months ended March 31, 2022, compared with $1.7 million in the same period in 2021. We had a net loss of $3.8 million for the period 2022, but noncash expenses of $3.6 million and working capital generated by the collection of receivables offset the loss.
We had proceeds from financing activities of approximately $0.3 million related to the exercise of stock options during the three months ended March 31, 2022. For the same period in 2021, we raised $70.7 million in a public offering of our common stock as well as generated $1.1 million from the issuance of shares related to the exercise of stock options. These proceeds in 2021 were partially offset by the payment of $1.6 million in earnout payments from a previous acquisition.
We believe that funds generated from operations, together with existing cash, will be sufficient to finance our current operations and planned growth for the next twelve (12) months. In addition, we believe we can generate the cash needed to operate beyond the next 12 months from operations. However, we may seek additional debt or equity financing to supplement cash from operations to fund acquisitions or strategic partner relationships, make capital expenditures, and satisfy working capital needs. We currently have an effective shelf registration statement, which allows us to issue, in unlimited amounts, securities, including common stock, preferred stock, debt securities, warrants, and units.
Critical Accounting Policies
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates and assumptions. Our significant accounting policies are described in Note 2 to the Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2021 (2021 Annual Report on Form 10-K). The accounting policies we used in preparing these financial statements are substantially consistent with those we applied in our 2021 Annual Report on Form 10-K. Our critical accounting policies are described in Management’s Discussion and Analysis included in the 2021 Annual Report on Form 10-K.
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Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to improve consistent application and simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance. ASU 2019-12 was effective for annual and interim reporting periods beginning after December 15, 2020, with early adoption permitted. The adoption of this standard did not have a material effect on our financial position, results of operations, or cash flows.
Not Yet Adopted
ASU Topic 2021-08 Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. The standard is effective for the Company’s fiscal year beginning January 1, 2023, with early adoption permitted. The Company is currently evaluating the effect of this pronouncement on its Consolidated Financial Statements, but it is not expected to have a material impact.
Off Balance Sheet Arrangements
As of March 31, 2022, there were no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We have market risk exposure related to foreign currency exchange rates. Market risk is the potential negative impact of adverse changes in these prices or rates on our Consolidated Financial Statements. We are subject to foreign currency exchange rate risk because we have foreign subsidiaries that are cost centers and pay certain expenses in foreign currencies. To manage exchange rate risk, we may enter into derivative contracts, however, historically, this risk has been insignificant and we have not entered into any derivative contracts.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation, as of the end of the period covered by this report, of the effectiveness of our disclosure controls and procedures, as such term is defined in Exchange Act Rule 13a-15(e). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures, as defined in Rule 13a-15(e), were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act), that occurred during the quarter ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluations of its internal controls to enhance, where necessary, its procedures and controls.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material pending legal proceeding.
Item 1A: Risk Factors
There have been no material changes in our risk factors from the risks previously reported in PART 1, ITEM 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021. You should carefully consider the factors discussed in PART I, ITEM 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no sales of unregistered securities during the quarter ended March 31, 2022 that were not previously reported on a Current Report on Form 8-K
Item 3. Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosure
N/A
Item 5. Other Information
None
Item 6. Exhibits
| ** | Provided herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| OptimizeRx Corporation | ||
| Date: May 9, 2022 | ||
| By: | /s/ William J. Febbo | |
| William J. Febbo | ||
| Title: | Chief Executive Officer (principal executive officer) | |
| OptimizeRx Corporation | ||
| Date: May 9, 2022 | ||
| By: | /s/ Edward Stelmakh | |
| Edward Stelmakh | ||
| Title: | Chief Financial Officer and Chief Operations Officer (principal financial and accounting officer) | |
19
Exhibit 31.1
CERTIFICATIONS
I, William J. Febbo, certify that;
| 1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended March 31, 2022 of OptimizeRx Corp (the “registrant”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 9, 2022
/s/ William J. Febbo
By: William J. Febbo
Title: Chief Executive Officer
Exhibit 31.2
CERTIFICATIONS
I, Edward Stelmakh certify that;
| 1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended March 31, 2022 of OptimizeRx Corp (the “registrant”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 9, 2022
/s/ Edward Stelmakh
By: Edward Stelmakh
Title: Chief Financial Officer
Exhibit 31.2
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly Report of OptimizeRx Corp (the “Company”) on Form 10-Q for the quarter ended March 31, 2022 filed with the Securities and Exchange Commission (the “Report”), I, Will Febbo, Chief Executive Officer and I, Edward Stelmakh, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods presented. |
| By: | /s/ William J Febbo |
| Name: | Willian J Febbo |
| Title: | Principal Executive Officer |
| Date: | May 9, 2022 |
| By: | /s/ Edward Stelmakh |
| Name: | Edward Stelmakh |
| Title: | Principal Financial Officer |
| Date: | May 9, 2022 |
This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.