OptimizeRx Corp 10-Q

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 v olatility 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. 14 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. 15 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. 16 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.