# OptimizeRx Corp: Form 10-Q for the period ended Sep 30, 2024

- Company: [OptimizeRx Corp](/companies/oprx.md) (CIK 1448431)
- Form: 10-Q
- Filed: 2024-11-14
- Accepted by EDGAR: Nov 14, 2024, 20:30 ET
- Period: 2024-09-30
- Accession: 0001213900-24-098319
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1448431/000121390024098319/ea0220081-10q_optimizerx.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1448431/000121390024098319/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $21.3m | us-gaap:Revenues |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $59.8m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $7.9m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $22.5m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $13.4m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $37.4m | us-gaap:GrossProfit |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$8.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$17.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $1.5m | us-gaap:InterestExpenseNonoperating |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $4.6m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | −$817.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | −$1.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$9.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$20.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.50 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$1.10 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.50 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$1.10 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 18,323,542 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 18,250,775 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $4.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $95.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-09-30 | $16.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $46.9m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $165.2m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $14.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $50.7m | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $33.3m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-09-30 | $2.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-09-30 | $114.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,057 characters.

### 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: our history of losses, seasonal trends in the pharmaceutical brand marketing industry; the inability to support our technology and scale our operations successfully, developing and implementing new and updated applications, features and services for our solutions may be more difficult and expensive and take longer than expected; the inability to offer high-quality customer support for our solutions; 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 targets, complete acquisitions, or integrate acquisitions successfully; acquisition activities may disrupt ongoing business and may involve increased expenses; inability to realize the financial and strategic goals contemplated at the time of a transaction; inability to realize any synergies or other anticipated benefits of an acquisition or that such synergies or benefits may take longer than anticipated to be realized; risk that the integration with an acquired entity may be more costly or difficult than expected; impairment charges for goodwill or other intangible assets may be increased as we shift our focus away from our non-core businesses; inability to comply with the restrictions in our credit agreement; inability to generate sufficient cash to service debt and fund other obligations; inability to attract and retain senior management and other 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; increases in costs due to inflation and other adverse economic conditions; decreases in customer demand due to macroeconomic factors; lack of a consistent active trading market for our common stock; volatility in the market price of our common stock; and the failure to remediate the identified material weakness or any other material weaknesses identified in the future.

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, 2023. 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.

### Overview

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 two million U.S. healthcare providers and millions of their patients through an intelligent omnichannel technology platform embedded within a proprietary point-of-care network, as well as mass digital communications channels, OptimizeRx helps life sciences organizations engage and support their customers.

Historically, our revenue was generated primarily through the facilitation of various types of messages to health care providers via their EHR systems and ERx platforms using the OptimizeRx proprietary network to solve the ever-increasing communication barriers between pharmaceutical representatives and healthcare providers that have presented in the rapidly changing healthcare industry. Over time, the demand for different types of communication and marketing solutions among life sciences organizations, healthcare providers, and patients led us to expand upon our initial solutions to increase the variety of health-related information we deliver, as well as the platforms, technology, media distribution channels, and audiences through and to which we deliver. In addition, the October 2023 acquisition of Medicx Health provided the Company with a significant footprint for direct-to-consumer healthcare marketing. Today, we offer diverse tech-enabled marketing solutions through our AI-generated DAAP, using sophisticated machine-learning algorithms to find the best audiences in the correct channels at the right time. Customers are able to execute traditional marketing campaigns on our proprietary digital point-of-care network, as well as dynamic marketing campaigns that optimize audiences in real time to increase the value of treatment information for healthcare professionals and patients in response to clinical care events. We employ a “land and expand” strategy focused on growing our existing client base and generating greater and more consistent revenues in part through the continued shift in our business model toward enterprise level engagements, while also broadening our omnichannel network. Our strategy for driving revenue growth is also expected to work in tandem with our efforts to increase margin and profitability as revenue drivers such as DAAP have inherently higher margins than most other messaging solutions we offer.

### Customer Concentration

Because the pharmaceutical industry is dominated by large companies with multiple brands, our revenue is concentrated in a relatively small number of companies. We have approximately 100 pharmaceutical companies as customers, and our revenues are concentrated in these customers. Loss of one of more of our larger customers could have a negative impact on our operating results. Our top five customers represented approximately 44% and 39% of our revenue for the years ended December 31, 2023 and December 31, 2022, respectively. In each of 2023 and 2022, we had one customer that each represented more than 10% of our revenues.

### Seasonality

In general, the pharmaceutical brand marketing industry experiences seasonal trends that affect the vast majority of participants in the pharmaceutical digital marketing industry. Many pharmaceutical companies allocate the largest portion of their brand marketing to the fourth quarter of the calendar year. As a result, the first quarter tends to reflect lower activity levels and lower revenue, with gradual increases in the following quarters. We generally expect these seasonality trends to continue and our ability to effectively manage our resources in anticipation of these trends may affect our operating results.

### Impact of Macroeconomic Events

Unfavorable conditions in the economy may negatively affect the growth of our business and our results of operations. For example, macroeconomic events including volatility of inflation and interest rates have led to economic uncertainty. In addition, high levels of employee turnover across the pharmaceutical industry as well as a fewer number of U.S. drug approvals could create additional uncertainty within our target customer markets. Historically, during periods of economic uncertainty and downturns, businesses may slow spending, which may impact our business and our customers’ businesses. Adverse changes in demand could impact our business, collection of accounts receivable and our expected cash flow generation, which may adversely impact our financial condition and results of operations.

### Key Performance Indicators

We monitor the following key performance indicators to help us evaluate our business, measure our performance, identify trends affecting our business and make strategic decisions. We have updated the definition of “top 20 pharmaceutical manufacturers” in our key performance indicators to be based upon Fierce Pharma’s most updated list of “The top 20 pharma companies by 2023 revenue”. We previously used “The top 20 pharma companies by 2022 revenue”. As a result of this change, prior periods have been restated for comparative purposes.

**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 2023 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 believe 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 September 30, 2024 as compared to the twelve months ended September 30, 2023 is primarily the result of stronger DAAP related revenue streams and the Company’s October 2023 acquisition of Medicx Health, which added to 2024 revenues and was not included in the 2023 amounts (in thousands).

|  | Rolling Twelve Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Average revenue per top 20 pharmaceutical manufacturer | $2,824 | $1,902 |

**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 2023 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. Our penetration within this core customer group stayed consistent from the twelve months ended September 30, 2023 to the twelve months ended September 30, 2024.

|  | Rolling Twelve Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Percent of top 20 pharmaceutical manufacturers that are customers | 100% | 100% |

**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 2023 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.

|  | Rolling Twelve Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Percent of total revenue attributable to top 20 pharmaceutical manufacturers | 64% | 61% |

20

**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 September 30, 2024 was higher due to increased adoption of DAAP year over year as well as the acquisition of Medicx Health in the fourth quarter of 2023.

|  | Rolling Twelve Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Net revenue retention | 127% | 93% |

**Revenue per average full-time employee.** We define revenue per average full-time employee (“FTE”), 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 per employee increased year over year due to revenue growing at a higher rate than the average number of FTEs over the last 12 month period (in thousands).

|  | Rolling Twelve Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Revenue per average full-time employee | $630 | $568 |

### Results of Operations for the Three and Nine Months Ended September 30, 2024 and 2023

The following tables sets forth, for the periods indicated, the dollar value and percentage of net revenue represented by certain items in our consolidated statements of operations (in thousands):

|  | Three Months Ended September 30, 2024 |  | 2023 |  |
| --- | ---: | ---: | ---: | ---: |
| Net revenue | $21,309 | 100.0% | $16,331 | 100.0% |
| Cost of revenues | 7,862 | 36.9% | 6,531 | 40.0% |
| Gross profit | 13,447 | 63.1% | 9,800 | 60.0% |
| Operating expenses | 22,009 | 103.3% | 13,353 | 81.8% |
| Loss from operations | (8,562) | (40.2)% | (3,553) | (21.8)% |
| Other income (expense) |  |  |  |  |
| Interest expense | (1,524) | (7.1)% | — | —% |
| Other income | 38 | 0.2% | — | —% |
| Interest income | 107 | 0.5% | 688 | 4.2% |
| Total other income (expense) | (1,379) | (6.4)% | 688 | 4.2% |
| Loss before provision for income taxes | (9,941) | (46.7)% | (2,865) | (17.5)% |
| Income tax benefit | 817 | 3.8% | — | —% |
| Net loss | $(9,124) | (42.78)% | $(2,865) | (17.5)% |

\* Balances and percentage of net revenue information may not add due to rounding

|  | Nine Months Ended September 30, 2024 |  | 2023 |  |
| --- | ---: | ---: | ---: | ---: |
| Net revenue | $59,811 | 100.0% | $43,153 | 100.0% |
| Cost of revenues | 22,456 | 37.5% | 18,094 | 41.9% |
| Gross profit | 37,355 | 62.5% | 25,059 | 58.1% |
| Operating expenses | 54,695 | 91.4% | 40,557 | 94.0% |
| Loss from operations | (17,340) | (29.0)% | (15,499) | (35.9)% |
| Other income (expense) |  |  |  |  |
| Interest expense | (4,597) | (7.7)% | — | —% |
| Other income | 113 | 0.2% | — | —% |
| Interest income | 231 | 0.4% | 2,074 | 4.8% |
| Total other income (expense) | (4,253) | (7.3)% | 2,074 | 4.8% |
| Loss before provision for income taxes | (21,593) | (36.1)% | (13,424) | (31.1)% |
| Income tax benefit | 1,561 | 2.6% | — | —% |
| Net loss | $(20,032) | (33.5)% | $(13,424) | (31.1)% |

\* Balances and percentage of net revenue information may not add due to rounding

### Net Revenues

Net revenue reported for the three months ended September 30, 2024 was approximately $21,309, an increase of approximately 30% over the approximately $16,331 from the same period in 2023. Our net revenue reported for the nine months ended September 30, 2024 was approximately $59,811, an increase of approximately 39% over the approximately $43,153 from the same period in 2023. The increase in net revenue was as a result of the impact of the fourth quarter 2023 acquisition of Medicx Health, which was not included in the prior year numbers, plus growth of DAAP related sales. The increases in the three and nine months ended September 30, 2024 were partially offset by a reduction of approximately $1,088 and $4,169, respectively, as a result of the disposal of our non-core Access solutions and the sale of certain non-core solutions-related contracts in the fourth quarter of 2023.

Net revenues of $23,852 and $68,603, as shown in the pro forma financial consolidated statement of operations data table in Note 1 above, includes $1,088 and $4,169 related to the Access and other non-core solutions revenues for the three and nine months ended September 30, 2023, compared to $21,309 and $59,811 for the three and nine months ended September 30, 2024, for which no Access or other non-core solutions revenue was recorded.

### Cost of Revenues

Our cost of revenues, comprised primarily of revenue share expense paid to our network partners as well as costs associated with licensing data from third parties, was approximately $7,862 or 36.9% of net revenues for the three months ended September 30, 2024 compared to $6,531 or 40.0% of net revenues for the three months ended September 30, 2023 and was approximately $22,456 or 38% of net revenues for the nine months ended September 30, 2024, compared to $18,094 or 42% of net revenues for the nine months ended September 30, 2023.

The changes in cost of revenues as a percentage of revenues was a result of solution and channel mix. Additional discussion is included in the Gross Margin section below.

### Gross Margin

Our gross margin, which is the difference between our revenues and our cost of revenues, was approximately $13,447 or 63.1% of net revenues for the three months ended September 30, 2024 compared to $9,800 or 60.0% of net revenues for the three months ended September 30, 2023 and was approximately $37,355 or 62.5% of net revenues for the nine months ended September 30, 2024 compared to $25,059 or 58.1% of net revenues for the nine months ended September 30, 2023.

We had higher third quarter revenues compared to the same year ago period due to the fourth quarter 2023 acquisition of Medicx Health and growth in our DAAP related sales, leading to increased gross margin. Our overall margin percentage improved, compared with a year ago, as a result of an increased delivery of higher margin revenue solutions, such as DAAP and Medicx Audience Activation (“MAA”), and using more cost-effective channel partnerships.

### Operating Expenses

Operating expenses increased to approximately $22,009 for the three months ended September 30, 2024 from approximately $13,353 for the same period in 2023, an increase of approximately 65%. For the nine months ended September 30, 2024 operating expenses were approximately $54,695 compared to approximately $40,557 for the nine months ended September 30, 2023, an increase of 35%. The detail by major category is reflected in the table below (in thousands).

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Stock-based compensation | $2,604 | $3,206 | $8,530 | $11,090 |
| Depreciation and amortization | 1,095 | 467 | 3,235 | 1,395 |
| Goodwill impairment | 7,489 | — | 7,489 | — |
| Other general and administrative expenses | 10,821 | 9,680 | 35,441 | 28,072 |
| Total operating expense | $22,009 | $13,353 | $54,695 | $40,557 |

Stock-based compensation decreased from approximately $3,206 for the three months ended September 30, 2023, to approximately $2,604 for the three months ended September 30, 2024, and decreased from approximately $11,090 for the nine months ended September 30, 2023, to approximately $8,530 for the nine months ended September 30, 2024. The decrease in both periods was a result of the lower grant date fair value of awards due to declines in the Company’s stock price as well as fewer equity awards made in such periods.

Depreciation and amortization increased from approximately $467 for the three months ended September 30, 2023, to approximately $1,095 for the three months ended September 30, 2024, and increased from approximately $1,395 for the nine months ended September 30, 2023, to approximately $3,235 for the nine months ended September 30, 2024. The increase in both periods was a result of the additional amortization associated with the identifiable intangibles arising from the Medicx Health acquisition.

The Company recorded goodwill impairment in the amount of $7.5 million in the three months ended September 30, 2024. This amount represents the excess of the book value of the Company’s equity over the estimated fair value.

Other general and administrative expenses increased from approximately $9,680 for the three months ended September 30, 2023 to approximately $10,821 for the three months ended September 30, 2024, and increased from approximately $28,072 for the nine months ended September 30, 2023, to approximately $35,441 for the nine months ended September 30, 2024. This increase in both periods is primarily a result of increases in compensation expense, due to additional headcount as a result of the Medicx Health acquisition, increasing salary, bonus, and commission expense. There was also an increase in contractors and consultants.

### Other income (expense)

Interest expense was approximately $1,524 and $4,597 for the three and nine months ended September 30, 2024 and represents interest charges on our Term Loan, which was raised to partially fund the acquisition of Medicx Health in the fourth quarter of 2023, together with the amortization of the related issuance costs.

Other income was $38 and $113 for the three and nine months ended September 30, 2024 and represents a reduction in the estimated amount due as a result of a supplier related payment contingency.

Interest income decreased from approximately $688 for the three months ended September 30, 2023, to approximately $107 for the three months ended September 30, 2024, and from approximately $2,074 for the nine months ended September 30, 2023, to approximately $231 for the nine months ended September 30, 2024. The decrease was a result of lower invested balances as we realized short-term investments during 2023 in order to partially fund the acquisition of Medicx Health.

### Income tax expense

Income tax benefit was approximately $817, or an effective rate of 8.2%, and $1,561, or an effective rate of 7.2% for the three and nine months ended September 30, 2024, respectively. For further information, see Part I, Item I. Financial Statements; Note 13 — Income Taxes in the Condensed Consolidated Financial Statements.

### Net Loss

We had a net loss of approximately $9,124 for the three months ended September 30, 2024, as compared to a net loss of approximately $2,865 during the three months ended September 30, 2023 and approximately $20,032 for the nine months ended September 30, 2024 as compared to $13,424 for the nine months ended September 30, 2023. The reasons and specific components associated with the change are discussed above.

### Liquidity and Capital Resources

Historically, our primary sources of liquidity have been cash receipts from customers and proceeds from equity offerings, in addition, during the year ended December 31, 2023, the Company entered into a Term loan of $40.0 million in order to partially fund the acquisition of Medicx Health. As of September 30, 2024, the total principal balance outstanding on the Term loan was approximately $36.8 million and we were in compliance with all of the financial covenants of the Term loan.

As of September 30, 2024, we had total current assets of approximately $46.9 million, compared with current liabilities of approximately $14.5 million, resulting in working capital of approximately $32.4 million and a current ratio of approximately 3.2 to 1. This represents a decrease from our working capital of approximately $36.4 million, whilst maintaining the same current ratio at 3.0 to 1 when compared to December 31, 2023. This decrease in our working capital is discussed in more detail below.

We believe that funds generated from operations, together with existing cash, will be sufficient to finance our current operations and meet our obligations under the Term loan 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, equity financing, or lines of credit to supplement cash from operations to fund acquisitions or strategic partner relationships, make capital expenditures, and satisfy working capital needs.

### Cash Flows

Following is a table with summary data from the consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023, as presented (in thousands).

|  | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash provided by /(used in) operating activities | $4,691 | $(982) |
| Net cash provided by /(used in) investing activities | (330) | 664 |
| Net cash provided by /(used in) financing activities | (2,087) | (7,969) |
| Net increase (decrease) in cash and cash equivalents | $2,274 | $(8,287) |

We generated approximately $4,691 from operating activities during the nine months ended September 30, 2024, compared with $982 used in operating activities in the same period in 2023. We had a net loss of $20,032 for the first nine months of 2024, which included non-cash expenses of $18,176. This was offset by cash generated through improved working capital management.

Cash used by investing activities was approximately $330 for the nine months ended September 30, 2024. We invested in internally developed software in the amount of $235 and spent $95 on property and equipment. Cash provided by investing activities for the same period in the prior year was $664 as we made a net investment of $2,311 in treasury bills and invested $1,561 in internally developed software.

Cash used for financing activities was approximately $2,087, during the nine months ended September 30, 2024. We used $587 to pay withholding taxes on behalf of employees vesting in restricted stock units and made repayments totaling $1,500 on our Term loan. Cash used for financing activities for the same period in prior year was $7,969, primarily related to the repurchase of 526,999 shares of our common stock for approximately $7,522. The remaining amount arose from paying withholding taxes on behalf of employees vesting in restricted stock units, partially offset by the receipt of funds from the exercise of stock options.

### Critical Accounting Estimates

We prepare our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”). 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. Estimates and assumptions have been made in determining the allowance for credit losses, carrying value of assets, fair values assigned to acquired long-lived assets, depreciable and amortizable lives of tangible and intangible assets, the carrying value of liabilities, the valuation allowance for deferred tax assets, the timing of revenue recognition and related revenue-share expenses, and inputs used in the calculation of stock-based compensation. 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, 2023 (2023 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 2023 Annual Report on Form 10-K.

#### Goodwill

We evaluate goodwill for impairment during our fiscal fourth quarter, or more frequently if an event occurs or circumstances change.

The use of different assumptions, estimates, or judgments in the goodwill impairment testing process may significantly increase or decrease the estimated fair value of a reporting unit. Generally, changes in DCF estimates would have a similar effect on the estimated fair value of the reporting unit.

During the third quarter of 2024, the Company experienced sustained decreases in its stock price and market capitalization. Accordingly, the Company conducted a quantitative impairment test of its goodwill as of September 30, 2024. The Company estimated fair value by weighting the results from a market approach and an income approach. Significant assumptions inherent in the valuation methodologies included, but are not limited to, prospective financial information, discount rate, and comparable multiples from publicly traded companies in the same industry. The assessment resulted in a non-cash impairment charge of $7.5 million.

Our critical accounting estimates are described in Management’s Discussion and Analysis included in the 2023 Annual Report on Form 10-K.

### Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU No. 2023-07 (“ASU 2023-07”), Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 requires annual and interim disclosures that are expected to improve reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses. The provisions of ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2023-07.

In December 2023, the FASB issued ASU No. 2023-09 (“ASU 2023-09”), Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 addresses investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This update also includes certain other amendments to improve the effectiveness of income tax disclosures. The provisions of ASU 2023-09 are effective for annual periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2023-09.

### Off-Balance Sheet Arrangements

The Company has contracts with various electronic health records systems and ePrescribe platforms, whereby we agree to share a portion of the revenue we generate for eCoupons or banners through their network. From time to time, the Company enters into arrangements with a partner to acquire minimum amounts of media, data or messaging capabilities. As of September 30, 2024, the Company had commitments for future minimum payments of approximately $16.7 million that will be reflected in cost of revenues during the remainder of 2024 and years 2025 through 2028.

## Controls and procedures

As filed, 4,618 characters.

### 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 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 not effective at the reasonable assurance level due to a material weakness in our internal control over financial reporting which was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.

To address the material weakness referenced above, the Company performed additional analysis and performed other procedures in order to prepare the condensed consolidated financial statements in accordance with GAAP. Accordingly, management believes that the condensed consolidated financial statements included in this quarterly report on this Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

### Plan for Remediation of Material Weakness

Management is actively engaged in the planning for, and implementation of, remediation efforts to address the material weakness identified above. Management intends to implement the following remediation steps:

a. The Company will require each third-party service organization to provide a SOC-1, Type 2 report to the Company for management to review and make adjustments to the remediation plans, as necessary.

b. If a SOC-1, Type 2 report is not available, the Company will evaluate each third-party’s relevant system(s) and reporting directly through inquiry and substantive testing of such third-party’s control environment.

c. If the Company is unable to obtain a valid SOC-1 Type 2 report or perform substantive testing of such third-party service organization’s control environment, the Company will implement a qualification and program triaging process, which would include modifying customer contracts, limiting the volume of activity with those third-parties and establishing other controls to ensure the completeness and accuracy of information received from those third-parties, such as performing tagging procedures where possible.

Management believes the measures described above will remediate the material weakness that we have identified. During the quarter ended September 30, 2024, the Company continued to engage with the third-party service organizations to discuss the reporting requirements. As management continues to evaluate and improve our disclosure controls and procedures and internal controls over financial reporting, the Company may decide to take additional measures to address control deficiencies or determine to modify certain of the remediation measures identified.

### Changes in Internal Control over Financial Reporting

Except as noted above, 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 September 30, 2024 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.

## Risk factors

As filed, 726 characters.

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, 2023. 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, 2023, 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.

Filed Nov 14, 2024.
Source: SEC EDGAR, the filing index for accession 0001213900-24-098319. Last ingested by Listed: Oct 24, 2026, 15:08 ET. No prices; not investment advice.