OptimizeRx Corp 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. 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. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. 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. Overview COVID-19 The full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict at the present time. We continue to abide by federal, state, and local safety regulations, including having unvaccinated employees work from home, and providing protective measures for our vaccinated employees who choose to work in our offices, including hygiene best practices as recommended by the Centers for Disease Control and local authorities. Our customers provide essential services in the healthcare industry and we believe that our digital communication technology is more important than ever in this environment. However, our revenue often comes from advertising or marketing budgets, and in a sustained economic downturn, those categories of spending may be cut. We will continue to closely monitor the updates regarding the spread of COVID-19 and its variants, the distribution of vaccines developed to combat COVID-19, and applicable vaccine mandates, and we will adjust our business operations according to guidelines from federal, state, local or foreign authorities. In light of the foregoing, we may take actions that alter our business operations, or that we determine are in the best interests of our employees, customers, partners and stockholders. 14 Company Highlights through October 2021 1. Generated sales of $16.1 million for the quarter ended September 30, 2021, a 53% increase over the same period in 2020. 2. Generated sales of $41.0 million for the nine months ended September 30, 2021, a 52% increase over the same period in 2020. 3. Achieved positive cash flow from operations of $2.1 million for the nine months ended September 30, 2021. 4. Completed all integration work for previous two acquisitions and paid last earnout payment related to acquisitions in the quarter ended March 31, 2021. 5. Raised an additional $70.7 million of capital in a public offering during the quarter ended March 31, 2021. 6. Enhanced our leadership team by adding a new Chief Operating Officer and Chief Financial Officer in October 2021. 7. Expanded our pipeline for our new Real World Evidence (“RWE”) messaging solution that we launched in Q2. 8. We continued to execute on our omnichannel strategy by partnering with Demandbase, which leverages the combination of institutional and in-workflow behavioral data at the point-of-care, and now expands our platform to personalize support and engagement of providers and patients at all care points along the patient journey and enables our customers to tailor account-based engagement experiences. 9. We implemented Therapy Initiation Workflow solution which allows life sciences companies to simplify therapy initiation by presenting healthcare providers with a fully electronic option to synchronize enrollment, benefits verification, prior authorization, and patient support onboarding. This new solution continues to expand the breadth of our platform beyond digital communications by enabling patients to obtain the therapies they need through life sciences’ support which is facilitated through our Therapy Initiation and Persistence Platform . Results of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 Revenues Our total revenue reported for the three months ended September 30, 2021 was approximately $16.1 million, an increase of 53% over the approximately $10.5 million from the same period in 2020. Our total revenue for the nine months ended September 30, 2021 was approximately $41.0 million, an increase of 52% over the approximately $26.9 million from the same period in 2020. The increased revenue resulted from increases in sales throughout our solutions. Cost of Revenues Our cost of revenue, comprised primarily of revenue share expense, increased slightly as a percentage of revenue in the quarter and nine months ended September 30, 2021, as compared to the same periods in 2020. These changes were the result of solution mix, both as it relates to solutions itself and the partners through which the solutions are delivered. Additional discussion is included in the gross margin section below. Three Months Ended September 30 Nine Months Ended September 30 2021 2020 2021 2020 Cost of Revenues % 43.7 % 42.8 % 43.3 % 42.3 % Gross Margin % 56.3 % 57.2 % 56.7 % 57.7 % 15 Gross Margin As reflected in the table above, our gross margin decreased slightly in both the three and nine months ended September 30, 2021 compared with the prior year. This is the result of solution mix. In general, there has been an increase in the percentage of activity flowing through our higher cost channels compared with a year ago. This was offset by the launch of our RWE solution. Our RWE solution 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. Operating Expenses Operating expenses increased from approximately $6.2 million for the three months ended September 30, 2020 to approximately $9.0 million for the same period in 2021. Operating expenses increased from approximately $19.0 million for the nine months ended September 30, 2020 to approximately $23.5 million for the same period in 2021. Overall, this increase results from our efforts to expand our product line and build out our organization to establish a strong base for current and future growth. Our expenses increased at a lower rate than our revenues as a result of the operating leverage of our model. The detail of expenditures by major category is reflected in the table below. Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Salaries, Wages, & Benefits $ 4,619,320 $ 3,304,388 $ 12,106,933 $ 9,686,985 Stock-Based Compensation 1,008,007 756,437 2,612,198 2,391,620 Contractors and Consultants 541,663 568,535 1,327,615 1,590,771 Travel 178,711 21,802 237,466 309,424 Board Compensation 61,250 61,250 183,750 164,000 Professional Fees 469,272 199,262 1,239,090 871,565 Investor Relations 60,630 28,356 157,936 76,483 Advertising and Promotion 337,778 85,085 722,343 374,152 Technology Infrastructure Costs 313,711 180,014 783,281 579,805 Integration and Exclusivity Costs 431,266 208,806 994,423 624,753 Data Costs 186,583 42,108 731,980 166,662 Office, Facility, and Other Expenses 304,703 211,606 829,193 593,084 Depreciation and Amortization 526,035 523,420 1,580,173 1,563,883 Total Operating Expense $ 9,038,929 $ 6,191,069 $ 23,506,381 $ 18,993,187 The increase in operating expenses related to salaries, wages, and benefits and other human resource related costs is due to the expansion of our team to support additional growth. Through the end of September, we have hired 32 new people this year, largely in areas focused on increasing revenue. This increase is partly offset by the decrease in contractors and consultants, as we have brought functions in house that were previously outsourced. We expect salaries, wages, and benefits to continue to increase in the fourth quarter due to the full impact of new hires already in place, as well as new hires in the pipeline. Travel expense remains down on a year to date basis as a result of pandemic-related travel restrictions, We reopened travel at the end of the second quarter and incurred significantly more travel expenses in the quarter ended September 30, 2021 than in the prior year due relaxed travel restrictions. 16 Professional fees increased in both the three and nine months ended September 30, 2021 compared with the prior year. With the assistance of an outside legal firm, we undertook a comprehensive governance review of our bylaws, board charters, equity compensation plan, and overall corporate policies to enhance and improve our overall governance. This review accounts for the majority of the year to date increase. In addition, due to the increase in our market cap, our outside auditors are now required to render an opinion on our internal controls. Our expenditures on professional fees in connection with the preparation for and work related to that audit in 2021 increased in the quarter ended September 30, 2021. We would expect professional fees to remain at a similar level for the balance of the year. Investor relations expense increased due to the expansion of our communication efforts to reach retail investors and expand our shareholder base. 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. Data costs increased as we have purchased more data, primarily to aid in our selling effort and allow customers to target their messages more appropriately, thereby increasing our ability to charge premium prices for more highly targeted messages. Integration and exclusivity costs represent payments to partners for access and/or exclusivity and increased because of new agreements signed. 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. Our office, facility and other expenses increased primarily because of the addition of new employees, including recruiter fees, as well as the reopening of our offices. All other variances in the table above are the result of fluctuations in the ordinary course of business. We expect our overall operating expenses to increase on a quarterly basis for the balance of the year as we further implement our business plan. We do not expect human resource costs to increase as quickly as revenues, however we do expect to hire additional employees to support and accelerate our anticipated growth. Net Income (Loss) We had net income of $.04 million for the three months ended September 30, 2021, as compared to a net loss of $0.3 million during the same period in 2020. We had a loss of approximately $0.2 million for the nine months ended September 30, 2021, as compared to net loss of approximately $3.6 million during the same period in 2020. The reasons and specific components associated with the change are discussed above. Overall, the net income for three months ended September 30, 2021 and decreased loss for the nine month period ended September 30, 2021 resulted from the increased margin generated by our higher revenues, partially offset by the increased operating expenses. Liquidity and Capital Resources As of September 30, 2021, we had total current assets of $108.4 million, compared with current liabilities of $7.6 million, resulting in working capital of approximately $100.8 million and a current ratio of 14.8 to 1. This represents an increase from our working capital of approximately $23 million and current ratio of 3 to 1 at December 31, 2020. Our operating activities provided approximately $2.1 million in cash flow during the nine months ended September 30, 2021, compared with cash used of approximately $3.7 million in the same period in 2020. The cash provided in the 2021 period was the result of our net loss increased by noncash expenses, which resulted in positive cash flow. This was partially offset by working capital used in the reduction of liabilities and to support growth in accounts receivable due to our increased revenue levels. The cash used in the 2020 period was primarily the result of increased investment in working capital; in particular, we made a $2.0 million prepayment to a partner that was expensed over the balance of the year. 17 We used insignificant amounts in investing activities in both the nine months ended September 30, 2021 and 2020. These investments related to purchases of equipment as well as investments related to the expansion of our network capabilities in our adherence solution. Our financing activities provided $72.9 million in the nine months ended September 30, 2021, compared with cash used of approximately $3.1 million in the same period in 2020. We raised $70.7 million in a public offering of our common stock as well as generated $3.8 million from the issuance of shares related to the exercise of stock options. These were partially offset by the payment of $1.6 million in earnout payments from a previous acquisition. We have no remaining earnout payments due in the future. In the 2020 period, financing activities used approximately $4.4 million related to earnout payments from a previous acquisition, offset by $1.3 million from the issuance of shares related to the exercise of stock options. Our main source of liquidity has historically been from the issuance of common stock. We do not anticipate the need to raise additional capital in the short or long term for operating purposes or to fund our growth plans. We are focused on growing our revenue, channel and partner network. However, as a company in a market that is active with merger and acquisition activity, we may have opportunities, such as for acquisitions or strategic partner relationships, which may require additional capital. We will assess these opportunities as they arise with the view of maximizing shareholder value. Related Party Transaction Jim Lang, one of our Board Members, is the CEO of Eversana, a leading global provider of services to the life sciences industry. Eversana is similar to other customers we generate revenue from, such as agencies or resellers. In 2021 we have recognized revenue of $150,000 from Eversana and have open contracts as of September 30, 2021 that will result in an additional $160,000. These contracts were sourced by Eversana on behalf of life science customers of theirs. The contracts are at market rates and were generated in the normal course of business. Critical Accounting Policies In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. There have been no material changes to our critical accounting policies as described in the footnotes to our financial statements included in our annual report on Form 10-K for the year ended December 31, 2020; however, we consider our critical accounting policies to be those related to determining the amount of revenue to be billed, the timing of revenue recognition, calculation of revenue share expense, stock-based compensation, capitalization and related amortization of intangible assets, impairment of assets, and the fair value of liabilities. 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 12, 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. 18 Off Balance Sheet Arrangements As of September 30, 2021, there were no off-balance sheet arrangements. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not applicable