OptimizeRx Corporation (NASDAQ:OPRX) Q3 2023 Earnings Call Transcript

OptimizeRx Corporation (NASDAQ:OPRX) Q3 2023 Earnings Call Transcript November 6, 2023

Operator: Good morning, everyone and thank you for joining OptimizeRx’s Third Quarter Fiscal 2023 Earnings Discussion. With us today is the Chief Executive Officer of OptimizeRx, William Febbo. He is joined by company Chief Financial Officer, Ed Stelmakh; President Steve Silvestro; General Counsel Marion Odence-Ford; and Senior Vice President of Corporate Finance, Andrew D’Silva. At the conclusion of today’s earnings call, I will provide some important cautions regarding the forward-looking statements made by management during today’s call. I would like to remind everyone that today’s call is being recorded and will be available for replay via webcast only. Instructions are included in today’s press release and in the Investors section of the company’s website. Now I would like to turn the call over to OptimizeRx CEO, William Febbo. Sir, please go ahead.

William Febbo: Good afternoon. Thank you for joining our third quarter earnings call. I’m pleased to note that Q3 has been an exciting fiscal and operational turning point for OptimizeRx. As noted in today’s press release, the quarter’s financial results came in better than initially expected with revenue growing 8% year-over-year to $16.3 million, which is a record third quarter for the company. The improvement was driven by strong organic growth in messaging led by our DAAP enhancement. All said, our total RWD deals for the year now stands at 16, ahead of our original 2023 expectation of approximately 10 deals and a clear sign of client adoption. We’re also increasing our guidance for 2023 and introducing preliminary guidance for 2024.

Ed will go into more detail, but for 2023 we’re now looking for revenue to come in between $68 million and $70 million with an adjusted EBITDA between $3 million and $4 million. $63 million to $65 million of the 2023 revenue guidance expected to come through OptimizeRx business and the remainder is expected to come through our acquisition of Medicx. For 2024, we believe our revenue will be at least $110 million with an adjusted EBITDA margin of at least 10%. Before we go further, I want to thank the OptimizeRx team for their tireless commitment and continuous effort to put into advancing our mission. In recent years, our efforts have created one of the most scalable industry solutions available to pharmaceutical marketers. Directionally, this has been no easy feat as OptimizeRx’s results have come about through the shifting sands of both the industry changes as well as the early adoption of advancements related to the digital shift which has permanently altered the way pharma, patients and prescribers engage with one another.

With that being said, we’re seeing very encouraging momentum heading into the end of the year and going into 2024. The macro headwinds that we identified last year have begun to normalize. Moreover, our clients that had started initial pilot programs with companies that had newly entered the space over the last 12 to 18 months are now completing the measurement of these programs and as we expected have learned that these solutions are not scalable and are beginning to drive bend back our way. Progress here is pacing ahead of what we anticipated, which is best evidenced by the strong GAAP or RWE momentum we’ve seen during the second half of 2023. These deals by their nature are larger, stickier and more strategically targeted, making us a more relevant partner with our client base.

In September, we unveiled a significant enhancement to our omnichannel healthcare engagement platform. This new AI directed capability unites point-of-care and traditional digital media to provide a comprehensive solution for pharmaceutical marketing. This announcement was the culmination of years of learning how to integrate AI into OptimizeRx’s customer use cases, subsequently transforming our HCP engagement platform along the way. The new AI driven platform expands on our patent pending HCP engagement technology to now include social, web display channel and CRM alerts which create more efficiencies directly with sales forces. With this development, OptimizeRx has renamed the HCP Engagement Platform, the Dynamic Audience Activation Platform or DAAP for short to mark the merger of our former RWE AI capability with our full omnichannel network and new proprietary position engagement data set.

The new DAAP solution advances our land-and-expand strategy enabling clients to gain maximum market penetration through scaling of outreach in real time across the company’s network of over 2 million HCPs across multiple major digital media channels and a point-of-care via electric health records, EHRs e-Prescribing and the telehealth platforms. DAAP helps our clients find patients best suited for their medications. As noted in multiple independent studies, this is one of the top challenges in today’s specialty medication driven market. In a recent engagement, the company reported a 19% script lift among AI identified HCPs seeing relevant patients including their early impact physicians who had historically high script writing behaviors. In other words, we helped our clients grow their business by enabling alignment of HCP and patient awareness when clinical decisions are being made.

Customers who have been exposed to DAAP quickly become our strongest advocates and this success is quickly moving us up the decision maker hierarchy with our larger customers. This is increasing our visibility cross functionally and across brands and we currently have 100% renewal rate. Given the improving macro environment and the recent customer traction we’re seeing with the DAAP enhancement, we believe last month’s acquisition of Medicx was perfect timing. Both business lines are showing growth, are seeing significant client engagement and we are moving forward as planned on executing against the numerous technological and operational synergies we mapped out during the due diligence period. The transaction further expands our omnichannel reach beyond HCPs to patients while adding multiple channels we haven’t accessed previously, which includes streaming and connected TV as well as various digital channels such as play, audio, online video and mobile among others.

Medicx technology is not only proven but profitable and we are transforming our organization into the most comprehensive healthcare marketing platform in the nation. As we highlighted last month, the majority of Medicx revenue is similar to that of OPRX, is generated through the world’s largest pharmaceutical manufacturer, but focused on patient marketing, where OptimizeRx has historically focused on HCPs. The combination provides a significant unlock for brands within this pharma customer base by seamlessly connecting the brand’s patient and HCP marketing team. I believe this aligns strongly with our land-and-expand strategy and enables significant upselling and cross selling opportunities, particular when you couple this fact that over 80% of the brands our respective companies support do not overlap.

We’ve already seen success with the combined team and secured our first cross sell deal with the top five pharma manufacturers and have numerous other deals in sight. With the closing of the Medicx acquisition, we have expanded our executive team with the addition of Medicx President, Theresa Greco, who is now our new Chief Commercial Officer. She will lead the commercial strategy and execution for the company and report directly to Steve Silvestro. As a result, Steve has been promoted to President and will lead all aspects of corporate strategy and daily business management. This will be a very natural transition for both Steve and the company. Steve’s leadership style has always extended organizationally and in my eyes, this is a testament to his commitment strategically positioning us with our customers and partners, which has been transformative to our go-to-market over the last four years.

Finally, I’d like to give an update on our cost cutting measures. I’m happy to report we’re ahead of schedule and we have already completed over half our planned cost reductions and have identified the remaining cuts and are in the final stages of executing against our objective. While some of this benefit will be seen in 2023, the full benefits of these cost cuts will be seen in our P&L in 2024. We believe we turned a significant corner since the start of the second half of the year and have incredible momentum going into 2024. And with that, I’d like to turn the call over to our CFO, Ed Stelmakh, who will walk us through the financial details for Q3 as well as the Medicx transaction. Ed?

Edward Stelmakh: Thanks Will. And recall, the press release was issued with results of our third quarter ended September 30, 2023. A copy is available for viewing and may be downloaded from the Investor Relations section of our website and additional information can be obtained through our forthcoming 10-Q. Third quarter revenue was $16.3 million, an increase of 8% from the $15.1 million we generated in the same period in 2022. Meanwhile, our gross margin decreased slightly from 62.4% in the quarter ended September 30, 2022 to 60% in quarter ended September 30, 2023 with the difference being largely tied to solution and channel partner mix. We’re encouraged by the quarter-over-quarter improvement on gross margins and it reflects the increase in the business associated with DAAP.

Our operating expenses remained relatively consistent year-over-year and came in at $13.4 million for the three months ended September 30, 2023. We had a net loss of $2.9 million or $0.17 per basic and fully diluted share for the three months ended September 30, 2023 as compared to a net loss of $3.5 million during the same period in 2022. On a non-GAAP basis, net income for the third quarter of 2023 was $1.6 million or $0.09 for full diluted share outstanding as compared to non-GAAP net income of $1.3 million or $0.07 per fully diluted share in the same year ago period. Meanwhile, our adjusted EBITDA came in at $9.9 million for the quarter and was effectively flat year-over-year. Operating cash flow came in at positive $1.5 million for the quarter.

We ended the quarter with a strong balance sheet and cash in short-term investments turning $63.5 million on September 30, 2023 compared to $74.1 million on December 31, 2022. The majority of the decline was due to our share repurchase program through which we bought back 526,999 shares of common stock for $7.5 million. Subsequent to the quarter’s end, we acquired Medicx for $95 million. The cash portion of the transaction was approximately $84.5 million and was funded through cash on our balance sheet as well as $40 million in debt financing. We currently have over $30 million in the bank. We are well funded to execute against our operational goals. We remain confident in our long-term growth outlook and are happy to say we’re increasing our guidance for 2023 and are now expecting revenue to come in between $68 million and $70 million with an adjusted EBITDA between $3 million and $4 million.

In addition, our preliminary 2024 guidance for revenue is expected to be at least $110 million with an adjusted EBITDA margin of at least 10%. We will have more details to share once we get through the RFP season, but early indicators are very encouraging as we bring our combined value prop to the market. Now let’s turn to the KPIs for the third quarter of 2023, which has largely stabilized and have started to show improvements when compared to the prior quarter. Average revenue for top 20 pharmaceutical manufacturers now stands at $2.1 million as we continue to work with 18 of the top 20 largest pharma companies in the world and 100% of the top 20 that don’t have the majority of their sales tied to COVID-19 vaccines. Net revenue retention rate is showing improvement at 93%, up from 89% in Q2 2023.

Meanwhile, revenue per FTE came in at $571,000 topping the $560,000 posted in Q2 2023. It’s also worth mentioning that Medicx has a net revenue retention rate of 130% and an average revenue per FTE of $851,000. We’re encouraged by the continued improvement in our KPIs as we move past the external market challenges and return to growth and profitability as a leader in our space. Now with that, I’d like to turn the call back over to Will. Will?

William Febbo: Thank you, Ed. Operator, now let’s move to Q&A.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question is from Sean Dodge with RBC Capital Markets. Please go ahead.

Thomas Schuyler: Hey, good morning. This is Thomas Schuyler on for Sean. Thanks for taking the questions and congrats on the strong results. So on the preliminary 2024 outlook, looking for somewhat of a bridge from 2023, are you at all able to share kind of any of the expected revenue contribution from Medicx or any sort of general growth rate assumptions that are kind of embedded within that? And then maybe just generally anything you can share around the visibility on the low end of that range? Thanks.

William Febbo: You’re talking about 2024, Tom that’s your question, not 2023?

Thomas Schuyler: Yes, yep, preliminary2024…

William Febbo: Yes, it’s a little early. That’s why we said up to 110 and up to EBITDA of 10%. We just did the full integration all of a few weeks ago. So we want to get our hands around that more, get a sense of RFPs and in full swing and also how the year is going to end with open contracts into the next year. But feel fairly encouraged, feel like we’ll be able to do that early in the year, next year. Ed do you want to add anything to that?

Edward Stelmakh: No, I think you got it. Yeah. I mean, once we get through our peak season at the close of the year, we’ll get you a lot more details around the visibility.

Thomas Schuyler: All right, understood. Thank you. And then then did you all, have obviously announced quite a few new deals recently. How should we think about the average size of those? Are they still sort of hovering in that $1 million to $2 million I think on an annualized basis and then I guess how might that average sort of change if we think about a combined offering with Medicx kind of in the future? Thank you.

Steve Silvestro: Tom, hey, this is Steve. Yes, the deals are still in the same range that $1 million to 2 million range. Although what we’re seeing is on the deals that are renewing that have been in place, the scale is larger simply because they’re finding more patients. So it’s tied to the Dynamic Audience finding more patients over time. So that build happens, which means every time we renew the deal, it’s not starting from zero, it’s starting from an existing patient base. So as we March on into 2024, you’ll see that deal size trickle up northward. And then with the addition of Medicx, what that does is enables direct-to-patient communication in addition to direct-to-HCP communication. So it’s the other side of that transaction between the HCP and the patient. So you could think of it as almost a near double over time as we start the communication to — between both sides.

Thomas Schuyler: All right, great. I appreciate the color. Congrats again.

Steve Silvestro: You got it. Thanks Tom, say hi to Sean.

Operator: Thank you. Our next question is from Jared Hassey [ph] with William Blair. Please go ahead.

Unidentified Analyst: Yes. Good morning guys. This is Jared on for Ryan Daniels. Thank you for taking our questions. Yes Will, maybe for you, nice to see the rebound in the performance after last quarter. So maybe a two-part question on some of the recent trends. I guess #1 curious if you could speak to the differences just in how the quarter ended up versus the preliminary release that you gave in mid-October. I think you came in about $1 million ahead of that original preliminary outlook. So we’d love to hear any specifics around that? And then second part here, it’s nice to hear the macro headwinds are alleviating for you guys. We would be curious to hear a bit more of what you’re seeing with the client base, maybe what’s driving that underlying improvement because it seems like others in this space are certainly still calling out some of those headwinds with farmers that have been in place last year four quarters.

So we’d love to just get any more kind of specific details as to what you’re seeing on that side of things. Thanks.

William Febbo: Yes, Jared, no problem. So on the on the first question around coming in beyond the prerelease all attributed to DAAP and successfully pulling through many more deals than anticipated towards the end of the quarter and getting that that work done inside of the quarter. We got more work done than we thought we would which is good, it shows, starting to show scale there, really thrilled on the client reaction. I think we’re finally hitting that tipping point where clients understand the value. Enough of them have tried it. We have 100% renewal rate on it. We’ve done a spectacular job marketing it, a real thought leadership. We had people on the team up on stages talking about real world examples of why this is a powerful tool and it was presented in a way I have to call out the marketing team just spectacular presentation of information that was digested, understood and people acted on.

I also will say that we internal to one of our clients which we can’t disclose, we were able to win an award some recognition around an innovative solution which is DAAP basically and that got us in year dollars. That was not anticipated. And so again, hats off to the team and the gang. And Steve, anything to add on that from a client perspective?

Steve Silvestro: No, I think you covered it. I mean the only thing that I would say in terms of headwinds, which was the second part of your question was the market headwinds are still there in terms of prevailing issues in the industry, although we’ve highlighted some of the stuff that we’ve seen subside. I think the more important thing to probably note here is to put punctuation around the fact that our return on investment measurements have happened and so we’ve been clear about we would start to see those that were over promising, under delivering in the competitive landscape just start to get sifted out of the market, that definitely happened in the first half of this year. And so now in Q3 we’re starting to see investment come back based on the fact that we have delivered an honest ROI and are a proven partner. And I think that’s a real key indication for scale going into the second half of the year and into 2024.