OptimizeRx Q2 2024 Earnings Call Transcript

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August 8, 2024

There are 8 speakers on the call.

Operator

Good afternoon, everyone, and thank you for joining OptimizeRx's 2nd quarter fiscal 2024 earnings call. With us today is the Chief Executive Officer of OptimizeRx, William Febo. He is joined by Chief Financial Officer, Ed Stillmock President, Steve Silvestro General Counsel, Marion Odense Ford and Senior Vice President of Corporate Finance, Andrew De 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 made available for replay via webcast only.

Operator

Instructions are included in today's press release and in Investors section of the company's website. Now I'd like to turn the call over to OptimizeRx CEO, William Thibault. Sir, please go ahead.

Speaker 1

Thank you, operator, and good afternoon to everyone joining today's Q2 2024 earnings call. While we welcome 36% year over year revenue growth, positive cash flow from operations and a beat for adjusted EBITDA, we fell short on revenue expectations and consensus midpoint. This was primarily a result of the timing issue with one of our largest DAP deals to date. We are having success in converting our DAP pipeline into closed deals. However, because DAP is new, innovative solution in the market, there are additional approvals at the pharma customer level required to close out all the items that would allow us to take the revenue into the quarter.

Speaker 1

We were working hard with our clients to get everything documented, but we didn't get it there before the end of the quarter. That said, we are building momentum with our clients and partners that have embraced our DAP solution and proprietary network and this is getting us closer to being pharma's preferred partner for brand marketing. As you're aware, pharma as an industry runs all new commercial tactics through internal multifunctional approvals, particularly for multimillion dollar deals and we needed these additional approvals to close. In this particular instance, one of our longest standing clients committed to moving forward was approximately $6,000,000 multi brand DAP program with that was due to launch in Q2, 2024 and got slightly delayed in their internal approval process. This customer is now nearly complete with its approval process and we expect full contract approvals to be completed in Q3 with conversion to revenue in the second half of twenty twenty four.

Speaker 1

I believe we would have surpassed consensus expectations on the top as well as the bottom had this timing shift not taken place. But the great news is that we're moving forward and the size of the transaction illustrates the power of the DAP platform. Our objective continues to remain very clear to convert as many of the over 300 brands we currently support to Dapp And since the second half of twenty twenty three, we have made significant progress with this initiative and have seen tremendous momentum with our clients who want to convert to DAP. As the number of deals continues to grow, we have accumulated enough market pricing knowledge to establish a more consistent pricing mechanism as a way of making our revenue recognition less lumpy, stickier and more consistent over time. We are in the process of rolling these out these changes out in Q3 as we continue along our evolution as a strategic partner to the top pharma companies in the world.

Speaker 1

In fact, we've seen a material separation between our top 3 pharma clients with average revenue per client at $9,700,000 versus our top 20 pharma clients with an average revenue of $2,700,000 which we believe is a testament to the value our top clients see in our solutions as they continue to award larger share of their commercial wallet to optimize Rx. While we are dealing with the timing issue, we are not seeing pullback from our clients on their spending in the second half of the year. Supported by an amazing team and a solid technology platform, our momentum is being driven by our ability to address our clients' largest challenge, to find and engage brand eligible patients seamlessly. It's not just about purchasing media, it's about precise targeting with machine learning and a compliant methodology, which is delighting our clients and yielding positive ROIs to them. We are seeing continued customer adoption as pharma is looking for partners with scalable solutions with both HCP and DTC reach, interoperability across multiple points of care and capability to accurately report insights back in a timely manner.

Speaker 1

Since the second half of twenty twenty three, we've seen accelerated success in converting the 300 plus brands that we support to DAP. In the first half of twenty twenty four, we closed 17 DAP deals, including 8 in the Q2, building on the 24 deals we closed in 2023. These deals are direct pharma engagements, which generally are more sticky, enjoy a very high ROI, have a higher gross margin for our business and continue to support a higher annualized contract value of around 1,000,000 dollars As we have said, tracking our ability to convert from tactical to DAP will provide a clear view of the longer term growth potential of this business. Of note, we closed our 1st cross sell for the DTC side of the business into a DAP program and enhanced our overall commercial team and leadership as well as approach to the second half for renewals, new launches and year ended reallocations, not to mention all the planning for 2025 that takes place the last 4 months of the year. We are ready with our best team to date.

Speaker 1

In addition, we have done some of DAP deals in our pipeline and as shared previously, approximately 50% is coming from the DTC side of the business with numerous opportunities in late stage negotiations. OptimizeRx remains a leading company with combined technologies to both create dynamic audiences and execute messaging across proprietary point of care network for our clients. We continue to see organic growth as the key driver of our business. The team is focused on executing against our thesis of driving more cross selling to our DCC and HCP clients and continuing to fine tune the platform to maximize its revenue potential. Given our traditional close rate and pipeline conversion, we have over an 80% view for our revenue guidance for the year at this point and have approximately $15,000,000 GOCAT remaining for the second half of the year to fall within consensus current expectations.

Speaker 1

We believe this is possible. We will keep everyone up to date as move through the year. And with that, I would like to turn the call over to our CFO, Ed Stalmak, who will walk us through our financial details. Ed?

Speaker 2

Thanks, Will, and good afternoon, everyone. A press release was issued with the financial results of our 2nd quarter ended June 30, 2024, and 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. 2nd quarter revenue came in at 18.8 $1,000,000 an increase of 36 percent from the $13,800,000 we recognized during the same period in 2023. Gross margin for the quarter increased from 56.6 percent in the quarter ended June 30, 2023 to 62.2% in the quarter ended June 30, 2024.

Speaker 2

Year on year gross margin expansion is tied to higher DAP related revenue as well as a favorable channel partner mix. Our operating expenses for the quarter ended June 30, 2024 increased by $2,700,000 year over year, largely due to the Medex Plus acquisition. We had a net loss of $4,000,000 or $0.22 per basic and fully diluted share for the 3 months ended June 30, 2024, as compared to a net loss of $4,100,000 or $0.24 per basic and fully diluted share for the same 3 month period in 2023. On a non GAAP basis, our net income for the Q2 of 2024 was $300,000 or $0.02 per fully diluted share outstanding as compared to non GAAP net loss of $200,000 or $0.01 per fully diluted share outstanding in the same year ago period. Our adjusted EBITDA remained at $500,000 gain for the Q2 of 2024 compared to a $800,000 loss during the Q2 of 2023.

Speaker 2

Operating cash flow came in at $2,900,000 dollars for the first half of twenty twenty four and we ended the quarter with a $15,000,000 cash balance as compared to a 13,900,000 dollars balance on December 31, 2023. The remaining principle of our debt financing currently stands at 37,300,000 dollars If you recall, to help fund the $84,500,000 cash portion of last October's Medix Health acquisition, the company took on a $40,000,000 debt financing and repaid off $2,700,000 of principal through the Q2 of 2024. We continue to believe we're well funded to execute against our operational goals. Now let's turn to our KPIs for Q2 of 2024. Average revenue per top 20 pharmaceutical manufacturers now stands at 2,700,000 and we work with all of the top 20 largest pharma companies in the world.

Speaker 2

Net revenue retention rate is showing improvement at 124%, up from 89% in Q2 2023. Meanwhile, revenue per FTE came in at $658,000 topping the $565,000 we posted in Q2 2023. We're encouraged by the continuing improvement in our KPIs as we move past the external market challenges and return to growth and profitability as a leader in our space. And now with that, I will turn the call back over to Will. Will?

Speaker 1

Hey, operator, why don't we turn to Q and A. Thank you. Thank

Speaker 3

Hey guys, thanks for taking the questions tonight. First one, maybe on the large client that was postponed. You didn't say it directly, but I assume that's stuck in medical legal review, number 1. And number 2, was there anything unique about this relative to other the end of the third quarter so that you can see some revenue recognition? The end of Q3 so that you can see some revenue recognition?

Speaker 1

Hey, Ryan, thanks. Good question. Yes, we have complete conviction that it will start inside of Q3. The distinction here is how large it is. And obviously, that is just very telling against us scaling the DAP solution.

Speaker 1

And not so much legal review, just process review. It's as pharma gets their arms around language, around machine learning and marketing, it's new. And that needs to be reviewed, but it's gone very well. Obviously, we wanted it to happen faster, we always do, but high conviction, very meaningful and it's with our largest standing, our longest lasting client, which we just the team just gets really excited about.

Speaker 3

Okay. That's very helpful color. And then if we think about the sales pipeline, maybe a few questions related to that. Any change in regards to what you're seeing with appetite for HCP versus DTC? I think the DAP pipeline was kind of fifty-fifty last quarter.

Speaker 3

And then number 2, I'm curious if you're also seeing more interest in bundles as you've kind of integrated the 2 offerings and really have brought to market the 1st integrated model for traditional digital media with point of care marketing?

Speaker 1

Yes. Steve, you want to grab that one?

Speaker 4

Yes. Happy to. Hey, Ryan, thanks for the questions. We continue to see in the pipeline requests coming in now for opportunities to bid both on HCP and DTC connected activity. I think that's something we're really excited about.

Speaker 4

We just participated in our 3rd innovation platform with a top 5 client where the goal of that platform, the goal of the event was innovative ways to connect HCP and DTC marketing to drive efficiency. And as you know, we had won the last couple that we were in with what we've looked at. So very excited to see that go forward. And we see that same activity level reflected in the pipeline. I think the demand from the market is very, very clear.

Speaker 4

And I think pharma has really wrapped their head around creating efficiencies of bringing those 2 together. I think what they don't know yet and we're all sort of wading through it together as we go is what execution looks like at scale rather. And so we'll have more to report back on that next time we speak. But as you heard from Will's prepared comments, we've already closed the 1st HCP DTC cross sell via DAP. So we're excited to now see how that goes and performs.

Speaker 4

And as with everything that we've seen in pharma together and over the last 20 years

Speaker 3

in my career,

Speaker 4

they'll do something, test it. If it works well, they'll scale it. And that's consistent with what we've seen across the board in the business.

Speaker 3

Okay. And then just in regards to the overlap with Medex, I know maybe 2 or 3 quarters ago, you indicated it was about a 20% overlap. Given the integration of the asset and your sales, can you give an update on how that's trended so we can view what potential upsell, cross sell opportunity is there? Thanks.

Speaker 1

Yes. I'd say there's been really good movement there relative to the closing of brands as we've messaged, we expect a lot of that to really trigger in the second half because we're coming up October will be the 1 year anniversary. Everyone tells you it takes a year even though you hope it takes a month. And we've seen just great cooperation among the team. We've seen curiosity from the client, which drives meetings.

Speaker 1

And so I would say come Q3, we'll be able to sort of quantify that relative to the 20%. I can't do that today, but all signs are positive that these the groups are working as a group and as a team, not as different groups. And we've done a good job with the training to make sure they feel they've got the skills and the resources to represent everything we do.

Speaker 3

Got it. All right. Well, thanks for the questions. And again, I know you fell short given a timing issue, but given that it's just timing, I'll still say congrats on the strong performance and the momentum you're seeing. Thanks.

Speaker 1

Thanks, Ryan. Thanks, Ryan.

Operator

And next we'll go to Kyle Bauser with B. Riley Securities.

Speaker 5

Great. Thanks for taking my question. So just Will, I think you mentioned in the prepared remarks that in relation to full year guidance, you've got about 80% visibility in revenues with $15,000,000 go get. Can you maybe help put that into perspective? For example, this time last year, how much incremental sales did you generate or maybe in another way, just trying to understand kind of your conviction here?

Speaker 5

Thank you.

Speaker 1

Yes. So strong conviction, otherwise wouldn't say it. The last year was a little bit of an anomaly because we actually saw business turn up faster than we thought. But generally, we're between 75% and 85% at this point. So I feel good about where we are.

Speaker 1

When you're scaling a new solution inside of a business, it's always there's always challenges like this timing. And also we bought a company last year, right? And we expect them to start to show some nice growth in the second half, just based on some of the fine tuning we've done around the team, the messaging and the training. So good strong conviction, not atypical of where we are, not tremendously better, either I don't want to paint as wrong picture, but feel good about it.

Speaker 5

Got it. Appreciate that. That's helpful. And then maybe 2 more questions. First, seasonality.

Speaker 5

I know we're kind of on track for doing about 60% of total sales in the back half of the year. So any color you can provide on kind of Q3, Q4 seasonality? And then separately, you've talked about streamlining reporting and analysis to kind of engage with executives and the data analytics teams. Can you talk about improvements here and how that's kind of been paying off by either winning follow on projects or referrals, etcetera? Thank you.

Speaker 1

Sure. Let me start with that second one first and then maybe Andy can talk to the seasonality relative to the numbers. On the additional insights and automating insights and that is what we've really focused on over the last year is fine tuning data and reporting, because the industry really adopted fully what we're doing in this space at point of care. And when they do that, they want every data point they can get, which is terrific. That's how they make their decisions.

Speaker 1

And it's so we've worked very hard to get to that point. In that process, we realized that 10 years doing something no one else has done gets you a lot of really unique skill set and data. And as we invested in our team, the reporting team and the data stack and data management, we realized that we actually have some really interesting proprietary insights. That is those are early days. Right now, we're focused on getting DAP to scale, getting DTC to grow and bring those 2 together as a combined value prop and probably inside of RFP season is when we'll start to talk to clients about 25 relative to incremental insights.

Speaker 1

If it happens sooner, that'd be great, but we're not counting on that.

Speaker 2

Yes, as far as seasonality goes, roughly 25% at max, 30% of our full year revenue would be in the 3rd quarter and the remainder fall into the 4th. So, yes, it's pretty much the general cadence over the last few years.

Speaker 5

Got it. That's perfect. Well, thanks for taking my questions and I'll jump back in queue.

Speaker 1

Thank you.

Operator

And next we'll go to Max Michalis with Lake Street Capital. Please go ahead.

Speaker 6

Hey guys, thanks for taking my questions. If we're looking at the size of your DAP deals in the pipeline, so the $6,000,000 DAP deal you've mentioned this quarter, I mean, have you seen material change, I guess, in the level or the size of DAPT deals going forward in the pipeline? And then I guess on top of that, if we look at your top 20 customers, top 3 are spending $9,700,000 and the average at 2.7%. Have you seen that average creep up, I guess, going forward? Do you expect that to creep up going forward with the remaining 17 pharmaceutical companies?

Speaker 6

Thanks.

Speaker 1

So, yes, it's interesting. I think the DAP size is proportional to our tenure with clients, right? There's just more trust, more adoption, and they were some of the early adopters. So in and those would clearly fall in the top 3. So it kind of answers both.

Speaker 1

We're seeing and that's why we called it out. We're seeing quite a big difference between the top 3 average and our top 20. And our job is pretty straightforward. Get the other 17 to do the same thing and we're a much bigger business. So when we talk about converting our 300 plus brands to DAP related, that is the mission.

Speaker 1

It's very straightforward. Steve, any other color you want to put on that relative to the process and how it's going?

Speaker 4

Yes. I would just add that the $6,000,000 was not for one single DAP deal, it was several deals. So with the same client, same multiple assets that's supporting in line. And then the other thing I would say is ACV continues to be either consistent or ticking up max. And I think that was one of the questions that you asked.

Speaker 4

So it's very consistent and linear in terms of the progress that we're seeing. But what we're seeing, we're seeing an acceleration of interest. And I think that's what you're hearing the positivity in our voice because of the acceleration of interest. And as Will said, it's pretty clear, we know what we need to do. We just need to be about it, so to speak.

Speaker 4

But good questions.

Speaker 2

Thanks, guys. That's it for me.

Operator

We'll next go to Stephanie Davis with Barclays.

Speaker 7

Hey, guys. This is Anna Krasinski on for Stephanie. I was wondering if you could talk a little more about the cross sales into the Medex customer base and just more on how that's trended versus your expectations? And if you think you have adequate sales headcount to block and tackle all of these prospects or if there are more investments as part of your forward strategy? Thank you.

Speaker 1

Steve, you want to grab that one?

Speaker 4

Yes, happy to. Thanks for the question. I think what we've seen is good integration and teamwork the teams as far as approaching clients. We definitely are fully staffed right now. We've hired several additional sales folks, which I think are reflected in the numbers that are from key competitors that Medex had that are sort of top performing businesses in the space.

Speaker 4

So we feel really good about the talent that is on board and working on behalf of the business. At this point, I think it really is just about focusing and we spent the first half of the year investing in getting those people on board, making sure that we were appropriately staffed, trained, etcetera. I think we'll start to see the fruits of that bear in the second half. And so our confidence is very strong in the Medex business performing well in the second half. In terms of first half performance, I think we I think it's about where we expected it to be, maybe a little bit behind.

Speaker 4

As Will said, we all want to microwave success when we first acquire something. It's never really as easy as we think it's going to be, in spite of our best efforts. So we continue to work on it. We've got great leadership on it and we'll continue to chop the wood.

Speaker 7

Got it. That's super helpful. Thank you. And then just as a quick follow-up. So last quarter you talked about like the macro stabilizing.

Speaker 7

And just curious given like the recent volatility in market, is this trend still intact or if you have any sort of updated macro forecast to share?

Speaker 1

Nothing more than we said in the prepared remarks, just that we're not seeing a pullback. The headwinds that we had a year ago are largely gone. FDA is cranking. Pharma is very focused on allocating funds to digital reach and measuring it, make sure it's scalable and effective. We have an election coming up.

Speaker 1

I think that won't largely affect pharma spending. Certainly, if we were all media only, you could argue there's sometimes a squeeze around that time, but we don't see that impacting our business.

Speaker 7

Got it. Super helpful. Thanks guys.

Speaker 1

Have a good day, Anna. Take care.

Operator

Thank you. And I'd like to turn the call back to our speakers for any closing remarks.

Speaker 1

Terrific. Thank you, operator, and thanks, everyone, for joining us today. While we needed to address the timing issue during the Q2 with our largest client buying more DAPT, as a team we're excited with the positive momentum and the impactful platform that we've built in this market. We're evolving to be a much stronger place than a year ago and that's what motivates us as a team. Our collaboration with pharma manufacturers to reach healthcare professionals and patients is meaningful in the market, fueled by our innovative AI generated models, proprietary datasets and a decade of point of care marketing.

Speaker 1

This market advantage helps us address and overcome many challenges. Today, we profoundly offer proudly offer, sorry, a comprehensive solution that integrate various components into agile powerful AI enabled commercialization strategies. These strategies effectively tackle crucial issues such as brand awareness, education, affordability and the recruitment of hard to find patients. These are daily changes challenges our clients, doctors and patients face in the current healthcare environment and we're thrilled to be part of that solution. Our dedication to supporting doctors and patients and aligning on quality of care is a driving force behind our team and our culture.

Speaker 1

We look forward to connecting with everyone in the upcoming investor events and our next earnings call. We will provide updates on our annual outlook if there is any changes to our current guidance range. Thank you for your time and belief in the OptimizeRx team. Thank you. Operator?

Operator

Thank you, sir. Before we conclude today's call, I'd like to provide the company's Safe Harbor statement that includes important cautions regarding forward looking statements made during today's call. Statements made by management during today's call may be contained forward looking statements within the definition of Section 27A in the Securities Act of 1933 as amended and Section 21E of the Securities Act of 1934 as amended. These forward looking statements should not be used to make investment decisions. The words anticipate, estimate, expect, possible and seeking and similar expressions identify forward looking statements.

Operator

They may speak only to the date that such statements are made. Such forward looking statements in this call include statements regarding estimation of total addressable market size, market penetration, revenue growth, gross margin, operating expenses, profitability, cash flow, technology, investments, growth opportunities, acquisitions, upcoming announcements and the need for raising additional capital. They also include the management's expectations for the rest of the year and adoption of the company's digital health platform. The company undertakes no obligation to publicly update or revise any forward looking statements, whether because of new information, future events or otherwise. Forward looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified.

Operator

Future events and actual results could differ materially from those set forth in, contemplated by or underlying these forward looking statements. The risks and uncertainties to which forward looking statements are subject to include, but are not limited to, the effects of government regulation, competition and other material risks. Risks and uncertainties to which forward looking statements are subject to could affect business and financial results and are included in the company's annual report on Form 10 ks for the quarter ended December 31, 2023. Its subsequent quarterly reports on Form 10 Q and its other filings with the Securities or Exchange Commission. These forms and filings are available on the company's website and on the SEC website at sec.gov.

Operator

Before we end today's conference, I would like to remind everyone that this call will be available for replay via webcast only starting later this evening running through for a year. Please refer to today's press release for replay instructions available via the company's website at www.optimizerx.com. Thank you for joining us today. This concludes today's conference. You may disconnect your lines.

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