OptimizeRx Corporation (NASDAQ:OPRX) Q4 2022 Earnings Call Transcript

OptimizeRx Corporation (NASDAQ:OPRX) Q4 2022 Earnings Call Transcript March 8, 2023

Operator: Good afternoon everyone and thank you for joining OptimizeRx’s Fourth Quarter Fiscal 2022 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, 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. 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, with that, I’d like to turn the call over to OptimizeRx CEO, William Febbo. Sir, please go ahead.

Will Febbo: Thank you, operator. Good afternoon everyone and thank you for joining us today for our fiscal 2022 earnings call. 2022 has been a year of great challenges and new opportunities for much of our industry and OptimizeRx. During the year, we saw an enormous amount of market volatility, temporary headwinds, and a consolidation within our sector. While headwinds impacted our topline results, we also saw the resilience of our business and its ability to continue to maintain strong financial footing as the pharmaceutical industry continued to accelerate its digital evolution. This created unprecedented interest in our company from clients, partners, and multiple strategic parties, aligning with the opportunity and OptimizeRx’s platform.

I believe this is directly correlated to the tectonic shift in the adoption towards the use of digital health technologies by clients, doctors, and patients. 2022’s revenue of $62.5 million fell within our revenue guidance range. Our gross margin of 62.4% surpassed the high end of our guidance, and we were able to generate nearly $11 million in operating cash flow during the year. Ed will go into more of the financial details shortly, but I maintain we are well-positioned for growth given the health of the business, the team, and the limited number of players who can scale, measure and report in our industry. More importantly, despite the macro headwinds that we’ve outlined in previous calls, we were still able to win six deals that utilize our AI-driven Real-World data or RWD-AI offering.

We expect to have additional RWD-AI wins this year and continue to believe revenue from this solution will increase at least 100% year-over-year and approach 20% of our total revenue in 2023. As a result, we are favorably positioned to see revenue growth and are looking for our topline in 2023 to increase at least 10%, which should also drive improvements to our KPIs by year’s end. While we are optimistic that the macro headwinds will begin to subside this year, then there have been positive trends since the mid-2022 trough, we are taking a more conservative approach to guidance this year given the macroeconomic backdrop despite having a higher revenue backlog at the start of the year as compared to previous years. Operationally, our technology investments, partnerships, and small tuck-in acquisitions have created a robust single-stop omnichannel offering that’s driving a superior ROI for the brands that we serve.

We’ve also made tremendous progress in building on our industry reputation and expanding awareness of our solutions. 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 US and are able to deliver digital solutions via this 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 over the next three to five years. With total industry digital spend at more than $10 billion and growing, the white space in which we sell into remains fast, even for the brands with which we are currently working. From a competitive intelligence perspective, we are well aware of new entrants.

And what we have witnessed has been brand managers being willing to test out the functionality of new vendors. While this did create a longer sales cycle in 2022, the end result is that after a short trial period, new entrants are being quickly weeded out from the ecosystem in which we compete. Initial solution evaluations of new entrants have been less than stellar due to offerings lacking meaningful connectivity and interoperability, which is really the foundation of our platform and enables us to address fundamental prescription issues facing HCPs and patients. As market demands continue to grow in complexity, along with continuous adoption of point-of-care solutions, coupled with actionable insights, our investment priorities shifted to provide our clients with enhanced reporting capabilities as supported by a recently established exclusive partnership with MMSI, an industry-leading data-enabled agency.

Meanwhile, pharma is moving a greater portion of their commercial spend toward omnichannel digital 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 the therapies. We believe smarter solutions, such as our RWD-AI offering, will capture the lion’s share of the pharma spend, particularly with legacy commercial dollars that are reallocated to digital. We believe early proof of this trend is clearly highlighted by our ability to win six RWD-AI deals during the time when pharma was tightening its first strings to preserve their year-end bottom-line. RWD-AI has the added benefit of moving us from being a tactical player with pharma to a bigger strategic partner where we can benefit from a top-down push by decision-makers, while obtaining stickier revenue streams with stronger margins and a greater overall growth potential.

That is why I’ve never been more excited about our strategic positioning than I am today. I expect the combined impact of what I’ve outlined today to pay significant dividends over the next three to five years and result in our revenue increasing to multiples of where it currently sits. For now, we are following through with our land-and-expand strategy. We continue to benefit from our delivery of superior return on investment, which continues to stand at well over a ratio of 10:1. This is significant considering pharma has traditionally sought ROIs of the two to three times spend. 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 Q4. Ed?

Ed Stelmakh: Thanks Will and good afternoon everyone. As with all our calls, the press release was issued with the results of our fourth quarter ended December 31st, 2022. A copy is available for viewing and may be downloaded from the Investor Relations section of our website, and additional information can be obtained to our forthcoming 10-K, which will be filed in the coming days. Turning to our financial results for the fourth quarter ended December 31st, 2022. Our reported revenue for the period was $19.7 million, a decrease of 3% from the $20.3 million we recognized during the same period in 2021 as pharma tightened its first strength around end of year biopsy. Gross margin for the quarter increased from 61% in the year ago period to 63% in the current reporting period.

The gross margin increase is the result of a favorable solution and channel partner mix. We continue to expect solid gross margins in 2023 and our guidance calls for our full year 2023 gross margin coming between 58% and 62%. Operating expenses increased to approximately $13.3 million in the fourth quarter of fiscal year 2022 as compared to approximately $11.8 million in the same year ago period. This increase in expense is primarily due to the investment in the OptimizeRx team to enable future growth, which also includes our April acquisition of EvinceMed. Providing more color around our year-over-year increase of OpEx, $1.4 million of the $1.5 million year-over-year increase was tied to stock-based compensation and non-cash expense, with the remaining amount being primarily related to the EvinceMed acquisition.

We had a net loss of $325,000 in the fourth quarter of fiscal 2022 as compared to a net income of approximately $623,000 during the same period in 2021. For further details on our fiscal 2022 results, you can refer to the MD&A section of our upcoming 10-K. On a non-GAAP basis, net income for the fourth quarter of 2022 was approximately $4.4 million or $0.25 per fully diluted share as compared to a non-GAAP net income of approximately $4 million or $0.22 on a fully diluted basis in the same year ago period. We also generated $10.7 million in cash flow from operations during 2022 and $2.8 million during the fourth quarter. Our balance sheet remains strong with cash, cash equivalents, and short-term investments totaling $74.1 million as of December 31st, 2022, as compared to $78.8 million as of September 30th, 2022.

The sequential decline in our cash, cash equivalents, and short-term investments was tied to our buyback. As a reminder, we announced a $20 million share repurchase program during the second quarter and during the fourth quarter, we bought back 508,000 shares for $7.5 million at an average price of $14.68. In total, we repurchased 1.2 million shares at an average price of $16.49 per share. This amounts to a nearly 7% reduction in our total outstanding shares from 18.3 million to 17.1 million, a net positive for our shareholders. In terms of our revenue outlook for the full year of 2023, the company expects revenue to increase at least 10% year-over-year and we expect first quarter revenue to come in between $11.5 million, $13 million. Now, let’s turn to our KPIs for 2022.

Our average revenue for top 20 pharmaceutical manufacturer declined year-over-year by nearly 14% to $2.1 million as a result of extended deal closing timelines as well as the higher turnover rates and pharma decision-maker ranks in the post-pandemic world. Our adoption within the most meaningful pool of global commercial pharma remains strong with 18 of the top 20 pharma companies continuing to be our clients. Net revenue retention rate also declined 90% due to the macroeconomic factors already mentioned and the resulting impact on several client programs. Our operating model has remained resilient in the face of 2022 challenges with the revenue per FTE coming in at $606,000. Our KPIs continue to capture and communicate the results of OPRX’s land-and-expand strategy in a consistently transparent manner.

We intend to continue to report our progress to our stakeholders in a similar fashion in 2023. 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.

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Q&A Session

Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from Ryan Daniels with William Blair. Please go ahead.

Ryan Daniels: Thanks for taking the questions. Maybe Ed I’ll start with a question for you on the revenue outlook. It looks like based on the Q1 guidance and the full year, you expect a drop in revenue of about 11% year-over-year in Q1, but still looking for 10% year-over-year growth. So, can you speak a little bit to the cadence of revenue throughout the year and the ramp? And then the level of conviction you have in given — getting that 10% plus growth kind of given the slower start to the year and maybe some commentary on backlog getting you there, kind of, what’s signed to be implemented or any visibility to help us kind of triangulate in there? Thanks.

Ed Stelmakh: Yes, thanks Ryan. Great question. So, as far as the cadence of concerns, as you know, the vast majority of our revenue comes in, in the second half of the year. So, yes, Q1 is definitely a little bit weaker than we had hoped for. But we’re coming out of the RFP season with a backlog that’s stronger than we had in the past, as Will had mentioned. So, our plan and our desire right now is to really continue to build on their backlog. We do have a line of sight to opportunities that we feel will get us to at least 10% growth rate this year, but it will definitely see more towards the back end of the year.

Ryan Daniels: How much of that 10% growth is kind of already contracted or in the backlog versus something you have to go out and win such that there could be volatility on the market on a macro basis worsens. I’m just trying to get a view for how much is really contracted.

Ed Stelmakh: Yes. So, we don’t disclose specific numbers. Typically, where we sit every year and looking forward in Q1 every year is between, I would call it, between 40% and 60% range of line of sight for the rest of the year. So, somewhere within that range is our line of sight for 10% growth rate going into this year.

Ryan Daniels: Okay. Thank you. And then on the KPIs, I know as one of the partners dropped out, is that an actual lost partnership or is it just the timing where there’s still a partner, but they weren’t actively engaged during the period, but could be on a go forward basis?

Ed Stelmakh: Yes, we had one client not really drop out, but it’s a part of normal churn within the smaller portfolios of certain clients. So, we had one client that was generating a small amount of revenue that’s just part of the normal cycle. Sometimes clients will come in, sometimes they will come out, but there’s no real drop in of our services and solutions within any declines.

Ryan Daniels: Okay. That’s what I thought. And maybe a macro question for Will. Just what do you see in the market in regards to pharma’s view on engaging providers at the point-of-care, you know, with digital solutions. You mentioned the 10:1 ROI. I know pharma’s shrinking their own sales force, but what’s the view broadly on care marketing?

Will Febbo: Hey Ryan. Thanks for the questions. Whenever you start to see people use the term legal review MLR in pharma services or marketing. That means that whatever you are selling is being taken very seriously. It just means the infrastructure within pharma. And I think you’ve heard it from other companies as well that that can sometimes delay sales cycle or launch. But I would say that is a very positive sign. That’s one. Two, there’s just been so much awareness built over the last 18 months, a lot of piloting, a lot of trying and pharma is very good at getting to the companies that can scale and leading in heavy there. So, just based on the conversations we have, based on the relationships we have, the trust we’ve built, well, yes, we said it got cluttered for the last 18 months post-COVID.

That clutter is going to start to fade away because if you can’t report, scale, and do it with the type of team that delivers it in a way that is at par excellent for pharma, you just won’t — you won’t be at the table. So, I would say, net-net, those conversations are all going really well, and anything we’ve done at that table to-date has performed and they’re back with us for more. So, net-net, good macro still have the headwinds internally, their turnover is slowing, FDA is still getting back on their feet, and obviously, the macro world we’re still dealing with interest rate hikes.

Ryan Daniels: Yes. And then final question. You mentioned the competitive front increasing and elongating the vision cycle. I’m curious if there was any specific product you offer a solution that was impacted? And then as a follow-up, if we think of your 10:1 ROI, have you heard anything anecdotally about the competitive environment and what they’ve been able to produce, it sounds like perhaps they haven’t been able to validate that level of savings so that that could flip back to you in the future? I don’t know if that’s a fair statement, but love to hear on those two. Thanks.