OptimizeRx Corporation (NASDAQ:OPRX) Q1 2023 Earnings Call Transcript May 10, 2023

OptimizeRx Corporation misses on earnings expectations. Reported EPS is $-0.09 EPS, expectations were $-0.08.

Operator: Good afternoon, everyone. And thank you for joining OptimizeRx’s First Quarter Fiscal 2023 Earnings Discussion. With us today is the Chief Executive Officer of OptimizeRx, Will Febbo. He is joined by company Chief Financial and Operating Officer, Ed Stelmakh; Chief Commercial Officer, Steve Silvestro; General Counsel and Chief Compliance Officer; Marion Odence-Ford; and Senior Vice President of Corporate Finance, Andrew D’Silva. At the conclusion of today’s earnings call, some important cautions regarding the forward-looking statements made by management during today’s call will be provided. I would like to remind everyone that today’s call is being recorded and will be made available for replay via webcast only.

Instructions are included in today’s press release and in the Investors section of the company’s website. In addition, management will discuss certain non-GAAP financial measures today that they believe aid in the understanding of the company’s financial results. A reconciliation to comparable GAAP financial measures can be found in today’s press release. Now I’d like to turn the call over to OptimizeRx CEO, Will Febbo. Sir, please go ahead.

Will Febbo: Thank you, Operator. Good afternoon, everyone. And thank you for joining our first quarter fiscal 2023 earnings call. Our first quarter results were in line with our expectations and revenue came in at $13 million, which was at the top end of our Q1 revenue guidance range of $11.5 million to $13 million. As a result, we are maintaining our full year revenue outlook, which calls for our topline to increase at least 10% year-over-year. We believe executing against our guidance will also result in year-over-year improvements to our KPIs by the end of 2023. While the macro environment hasn’t fully normalized, the industry trough appears to be behind us now and we continue to return to normalcy. This is the case despite the banking crisis that began to emerge at the end of Q1 and while there was some short-term disruption with our customer base as top-down focus moved towards understanding the potential macro overhang, that was short-lived.

And by early in the second quarter, pharma gained comfort by the resolutions that were implemented to address the fallout. We are seeing modest improvements to tactical sales, which, if you recall, was the portion of our business that was most impacted by the transitory macro headwinds we’ve discussed. We expect this part of our business to continue to improve as the macros work themselves out and believe our reach, focus on accessing physicians across multiple landing pads and ability to efficiently scale, while being able to report back data provides us with a significant competitive edge. More importantly, our AI-Driven Real-World Data or RWD-AI offering continues to gain momentum and we are in late-stage discussions for multiple deals and continue to believe revenue from this solution will increase at least 100% year-over-year and approach 20% of our total revenue for 2023.

Our RWD-AI pipeline is comprised of dozens of deals with a significant focus on the top 200 brands. We view the progress and the types of discussions we’re in as extremely positive for our growth, not just in 2023, but in the coming years as well. We believe this momentum is keeping us ahead of the pack as there are no other AI-driven in-workflow messaging solutions in the market. I’m extremely proud of our RWD-AI solutions as it truly showcases our ability to innovate and effectively differentiate ourselves, while driving actionable insights and better outcomes for pharma, HCPs and patients. We are now in our second full year of having RWD-AI solution in the market and have seen several examples of significant expansion and growth. For example, one client scaled from pilot to now several live programs, representing our largest multiyear expansion to-date of over $5 million.

This expansion was unique and that it represented extending our solutions in three dimensions, disease, channel reach and message type, very exciting. Operationally, our technology investments, partnerships and tuck-in acquisitions have created a robust single shop omni-channel offering, which has the ability to drive communications across multiple landing pads and is resulting in superior ROIs for the brands that we serve. We’ve also made tremendous progress in building on our industry reputation and expanding awareness of our solutions. Recall, part of what makes our business model special is the fact that we continue to manage the largest in workflow point-of-care network in the United States and are able to deliver digital solutions via the connectivity to prescribers.

To complement this, we have been expanding service offerings outside of the EHR, which we believe will result in us capturing a greater portion of the available industry white space in the coming quarters and years. Pharma is moving a greater portion of their more than $10 billion digital commercial spend towards omni-channel solutions, while looking for these solutions to deliver more impactful results, by not only identifying patients known to HCPs, but also pinpointing new patients for their therapy. We believe this bodes well for RWD-AI as smarter solutions are what pharma is looking for as they continue to reallocate legacy commercial dollars to digital. We believe early proof of this trend is clearly highlighted by the momentum we are seeing with RWD-AI, despite this being a newer offering with a higher price tag.

RWD-AI has the added benefit of moving us from a tactical player with pharma to a bigger strategic partner where we can benefit from the top-down push by decision makers while obtaining stickier revenue streams with stronger margins and a greater overall growth potential. As we mentioned in our last call, activity and outcome transparency requirements are continuing to gain importance at a rapid clip and is an area in which we will be investing this year. We view pharma’s focus on relevant insights very positively, as it shows they are getting more serious within our space and are looking to quickly read out vendors with limited scale, as well as spray and pray campaigns. In fact, we believe these capabilities will increase our market share and TAM, as we are the only platform that has integrated physician level engagement data across EHRs, display and social media, which provides a significant advantage on our guiding engagement programs across multiple landing pads.

By our estimates, the deeper insights that come from physician-level data reporting will be the new normal for our space. Moreover, the level of insights that can be derived from digital campaigns today is something that was previously unattainable, which is why pharma is embracing reporting in order to quickly catch up with the transformational best practices. And every day, we are witnessing the influence of insights from physician-level data reporting affect additional investment spend of our customers. This new motivation to invest in a clear sign that pharma is taking digital health more and more seriously, and is looking to establish standards as they continue to scale up investments in this space. Later this year, we expect to have completed an enhancement of our platform that allows for smart targeting through the use of AI on all programs, further enabling our customers’ ability to effectively and efficiently utilize more landing pads and generate stronger ROIs. This will further strengthen our platform, which, when coupled with our reach, capabilities and the over 10:1 ROI our customers obtain against their marketing spend creates a significant moat for our business.

Finally, during the quarter, we closed a multimillion dollar three-year agreement with a leading hub service company. Thus far, this is the largest deal of its kind for us and is tied to last year’s acquisition of EvinceMed. The engagement is focused on determining drug eligibility and affordability, and will help accelerate access to coverage and affordability information for pharma-sponsored patient support program. And with that, I’d like to turn the call over to our CFO and COO, Ed Stelmakh, who will walk us through the financial details for Q1. Ed?

Ed Stelmakh: Thanks, Will, and good afternoon, everyone. As with all our calls, a press release was issued with the results of our first quarter ended March 31, 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, which will be filed in the coming days. Turning to our financial results for the period. Our revenue for the quarter was $13 million, a slight decrease from $13.7 million recognized during the same period in 2022. The decrease in Q1 year-on-year revenues was due to the macro headwinds we have been communicating since they started toehold in Q2 2022. Meanwhile, our gross margin decreased slightly from 59% in the quarter ended March 31, 2022, to 57.2% in quarter ended March 31, 2023, slightly below the lower end of our annual gross margin range.

The decrease was due to solution and channel partner mix. We continue to expect gross margin to come in between 58% and 62% in 2023. Our operating expenses increased from $11.9 million for the three months ended March 31, 2022, to $14.5 million for the same period in 2023, an increase of 22%. Nearly 50% of the increase was tied to higher stock-based compensation and the remaining increase was primarily due to the full year impact of a few 2022 hires and the EvinceMed acquisition, combined with annual merit increases and normalized bonus payouts for the year. We had a net loss of $6.4 million or $0.37 per basic and fully diluted share for the three months ended March 31, 2023, as compared to a net loss of $3.8 million during the same period in 2022.

On a non-GAAP basis, net loss for the first quarter of 2023 was $1.6 million or $0.09 per basic and fully diluted shares outstanding, as compared to a non-GAAP net loss of $0.1 million or $0.01 per basic and fully diluted share in the same year ago period. Operating cash flow was virtually breakeven and a material loss of $86,000 during the quarter, which was largely due to the timing of upfront payments to fund investments in our growing capabilities and expanded access. Our balance sheet remains strong with cash, cash equivalents and short-term investments totaling $73.7 million on March 31, 2023, compared to $74.1 million in December 31, 2022. We are well capitalized to execute against our organic growth strategy and believe our balance sheet positions us to further expand our business solution offerings and drive profitable growth.

We’re also continuously evaluating M&A opportunities that fit within our strategic priorities at more attractive valuations when compared to last year. In terms of our revenue outlook for the full year 2023, the company continues to expect revenue to increase at least 10% year-over-year. Now let’s turn to our KPIs for the first quarter 2023. Our average revenue per top 20 pharmaceutical manufacturer now stands at $2 million as of the first quarter of 2023. And we are working 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. As a former pharma executive, I believe that this segment of the industry represents the largest opportunity for commercial digital solutions, and we continue to have a solid presence in this piece.

Our net revenue retention rate declined to 86% due to the macroeconomic factors and the resulting impact to several client programs that we discussed in our prior calls. Revenues per FTE held steady at $605,000 and in line with what we reported last quarter. As a reminder, our KPIs are calculated on a 12-month rolling basis and are impacted by the dynamics of the headwinds from the previous year. As these headwinds subside, we expect our KPIs to show improvement. And now, with that, I would like to turn the call back over to Will. Will?

Will Febbo: Thanks, Ed. Operator, now let’s move to Q&A.

Q&A Session

Operator: Thank you. [Operator Instructions] Your first question comes from Ryan Daniels with William Blair. Please go ahead.

Operator: Your next question comes from Sean Dodge with RBC. Please go ahead.

Operator: Your next question comes from Stephanie Davis with SVB. Please go ahead.

Operator: Your next question comes from David Grossman with Stifel. Please go ahead.

Operator: Your next question comes from Neil Chatterji with B. Riley. Please go ahead.

Operator: [Operator Instructions] Your next question comes from Max Michaels with Lake Street Capital Markets. Please go ahead.

Operator: There are no further questions at this time. Please proceed.

Will Febbo: Thanks, Operator. Once again, thank you, everyone, for joining us on our update call this afternoon. We continue to work through the opportunities before us with the expectation that growth will come in the coming quarters. We are maintaining our focus on product execution to continue to deliver superior ROIs on behalf of our customers, which has and will continue to pay dividends as we execute against the opportunity within the vast white space that we continue to sell into. Our valuation doesn’t effectively represent the current value of our company and I believe we can provide venture-type returns off our current trading price as we execute against the opportunity at hand. As a result, we intend to set up our trading plan for our recently authorized share repurchase program once our next trading window opens.

I want to remind everyone of our key strengths, which we expect will continue to propel OPRX’s story in 2023 and beyond. We have the largest in workflow network in the U.S. that reaches more than 60% of the active prescribers. Our landing pads outside the EHR, substantially increased our prescriber reach and enables us to build cutting-edge solutions. Finally, our AI enablement, which identifies HCPs whose patients are most in need of our customer’s resources and therapies is catching a toehold and we believe favorably positions us to grow for the foreseeable future. We are firmly positioned to execute against our 2023 financial and operational goals, which we believe will be bolstered by our strong balance sheet, which is something I’m very proud of, given the current capital markets backdrop.

As such, we look forward to making a positive impact across our pharma, prescriber and patient stakeholder base for years to come. Thanks again for joining us on our call today and we look forward to everyone joining us at the upcoming conferences in our next earnings call. Operator?

Operator: Thank you, sir. Before we conclude today’s call, I would 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 contain forward-looking statements within the definition of Section 27A and 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. 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 and upcoming announcements.

They also include the management’s expectations for the rest of the year. 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. Future events and actual results could differ materially from those set forth and 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 effect 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 are included in the company’s annual report on Form 10-K for the quarter ended December 31, 2022.

This Form is available on the company’s website and on the SEC website at sec.gov. 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 call. You may now disconnect your lines.