OPTIMIZERx Corp

NASDAQ:OPRX

Earnings Call Analysis

OptimizeRx Reports Strong Q4 Growth, Revised 2024 Goals

OptimizeRx ended 2023 with a robust fourth quarter, boasting a 44% revenue increase to $28.4 million, outpacing expectations and analyst estimates. Growth was fueled by organic development in their Dynamic Audience Activation Platform (DAAP) and the acquisition of Medicx Health. Core HCP business expanded by more than 30%. Operations have been streamlined, with a more than 10% cost reduction and a sharpened focus on core business. For 2024, a revised revenue target is set at a minimum of $100 million due to changes in revenue accounting, while maintaining a favorable margin profile and unchanged adjusted EBITDA guidance of at least $11 million.

A Year of Solid Growth and Strategic Acquisitions

The fourth quarter of 2023 marked a notable period for the company with revenues rising by 44% year-over-year to $28.4 million. This increase was primarily fueled by robust organic growth within its messaging segment led by the DAAP initiative and complemented by contributions from the recently acquired Medicx Health. The core healthcare provider (HCP) focused business also experienced substantial growth, exceeding 30% from the prior year.

Strategic Acquisitions Broadening Market Reach

The acquisitions of Medicx Health and Nextel have positioned the company to access a significantly larger market, providing comprehensive direct-to-consumer activation and messaging combined with its established omnichannel digital point-of-care marketing services. Integration of these acquisitions is proceeding ahead of schedule, indicating an efficient and effective expansion strategy.

Financial Outlook Amid Accounting Adjustments

Despite revising its 2024 revenue targets due to a change in revenue accounting treatment, the company maintains a positive outlook with revenue expected to reach at least $100 million, and adjusted EBITDA forecast to stand firmly at a minimum of $11 million. These projections account for challenges identified over the past years, now showing signs of normalization, and represent a healthy margin profile for the company looking ahead.

Innovative DAAP Offering Driving Market Penetration

The company's DAAP platform has proven to be a game-changer, enabling extensive market penetration through its AI-driven capabilities which integrate both point of care and traditional digital media into a cohesive pharmaceutical marketing solution. This platform has already demonstrated a fourfold increase in deals over the previous year, strengthening the company's position as a strategic partner rather than a tactical player within the pharmaceutical industry.

Financial Health and Investments

While the company recorded a net loss of $7.2 million in the fourth quarter, an increase from $0.3 million in the same period of 2022, its EBITDA improved from $3.9 million to $5.8 million year-over-year. This indicates an effective management of operational costs and investments, particularly in light of the acquisitions made. A robust return on investment is also maintained with ROIs over 10:1 for HCP messaging, signifying strong performance from its core business strategies.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, everyone, and thank you for joining OptimizeRx's Fourth Quarter Fiscal 2023 Conference Call. With us today is the Chief Executive Officer of OptimizeRx, William Febbo. He is joined by 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 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. And a transcript and a link to the audio recording of this conference call will be provided on the Investors section of the company's website. Now I would like to turn the call over to OptimizeRx's CEO, William Febbo. Sir, please go ahead.

[William Febbo, executive]

Good morning, and thank you for joining our conference call to discuss fourth quarter 2023 preliminary unaudited financials. As already communicated, our audit is taking longer than previous years due to the October 2023 acquisition of Healthy Offers Inc., which does business under the name of Medicx Health, the November 2023 solutions portfolio streamlining around core business lines and the validation and testing of certain third-party vendors, internal processes that are part of our previously disclosed material weakness remediation plan. The audit is in the final stages, and we are confident that we will be in a position to file our 10-K and audited financials, no later than April 15. I'm pleased to note that Q4 represented a strong end to 2023 and has favorably positioned us to start 2024. The quarter's financial results came in better than our initial expectations and top analyst estimates with Q4 revenue growing 44% year-over-year to $28.4 million. The improvement was driven by strong organic growth in messaging led by our Dynamic Audience Activation Platform, or DAAP or short as well as from approximately 2 months of contribution from our acquisition of Medicx Health. Notably, our legacy core HCP business grew over 30% when compared to the fourth quarter of 2022. We are excited about the many business highlights from the fourth quarter. We continue to validate our thesis on DAAP as we increase the number of deals in 2023 to '24 deals, providing us with a significant revenue launch pad this year. Progress coming in ahead of what we had anticipated is very favorable as by their nature, these DAAP deals are larger, stickier and more strategically targeted, making us more relevant partner with our client base. We also acquired Nextel, resulting in a combination of a leading direct-to-consumer audience activation and messaging execution business with our HCV-focused omnichannel digital point-of-care marketing business. This acquisition unlocks a significant adjacent market with an extremely large white space and cross-sell opportunity. The integration of MedicxHealth is tracking ahead of schedule and the majority of integration activities have been completed. Furthermore, we have optimized our operation by trimming our legacy OptimizeRx costs by over 10% and simultaneously realigning our focus on core business lines and moving away from noncore business. As noted in our March 11, 2024 press release, we are reiterating our guidance for 2024, but revising our original 2024 revenue target. This provision is due to a change in the revenue accounting treatment for certain revenue streams for messaging executed through Medicx Health channel partners that were historically recognized on a gross basis, but now will be recognized on a net basis. As a consequence of this gross to net accounting treatment, we adjusted our revenue target and anticipate revenue to reach at least $100 million for 2024. Importantly, this adjustment maintains our bottom line and, in fact, enhances our margin profile. Therefore, our adjusted EBITDA guidance remains unchanged, standing at at least $11 million for 2024. We believe the macroeconomic and competitive challenges we identified in 2022 and 2023 are returning to normal. In particular, we're witnessing encouraging momentum as our clients that had initiated pilot programs with newly established entrants in our field over the past 2 years are concluding the assessments of these programs and as anticipated, are finding that these perceived competitive solutions lack scalability and the ability to adequately report information back to customers, ultimately driving spending back towards our offerings. Before proceeding, I'd like to express my sincere gratitude to the OptimizeRx team for their unwavering dedication and relentless pursuit of our mission. Over the past few years, our collective efforts have led to the development of one of the most scalable solutions in the industry, tailored specifically for pharmaceutical marketers. We've recently expanded this initiative to include a highly impactful DTC component. This journey hasn't been without its challenges, navigating through the dynamic landscape of the industry shifts and embracing early digital advancements has been no small task, yet OptimizeRx's achievements to and as a testament to our resilience and foresight, fundamentally reshaping the dynamics of engagement between pharma, patients and prescribers. As previously mentioned, in September of last year, we introduced a significant enhancement to our omnichannel health care engagement platform, known as DAAP. This pioneering AI-driven capability seamlessly integrates point of care and traditional digital media, offering a holistic solution for pharmaceutical marketing. The unveiling marked the culmination of years dedicated to the understanding of how AI can optimize Rx's customer use cases, resulting in a transformative journey for our HCP engagement platform. Building upon our existing technology, we have extended the AI-driven platform reach, Compass social media, web display channels and CRM alerts, which fosters greater efficiency to collaboration with our customer sales forces. Since then, we've expanded these capabilities to now also encompass the DTC channels utilized by Medicx Health that includes streaming and connected TV as well as various digital channels such as display, audio, online video and mobile, among others. We're encouraged by this timely enhancement as we've already witnessed early initial cross-selling success with DAAP in the short time since we've consummated the acquisition. We will update everyone regarding our GAAP cross-selling efforts in our Q1 earnings call in early May. DAAP advances our land-and-expand strategy, enabling clients to gain maximum market penetration through the scaling of outreach in real time across the company's network of over 2 million HCPs and 240 million U.S. adults across multiple major digital media channels and at point of care via EHRs, e-prescribing and telehealth platforms. With this, OptimizeRx has evolved into one of the most comprehensive digital health care marketing platforms in the nation. This evolution firmly aligns with current pharma trends as the industry is moving a greater portion of their commercial spend towards 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 their therapies. We continue to believe smarter solutions such as our DAAP offering, we'll 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 the 4x year-over-year increase in DAAP deals seen in 2023. DAAP represents a transformative leap for us, transitioning us from being a mere tactical player within the pharmaceutical industry to a formidable strategic partner. This shift affords us the invaluable advantage of garnering top-down support from decision makers while also securing revenue streams with greater durability, enhanced margin and amplified growth prospects. These pivotal developments are reinforcing my level of excitement regarding our strategic positioning. I anticipate that the collective impact of our initiatives outlined today could yield substantial dividends over the next 3 to 5 years, catapulting our revenue to multiples of its current standing. As we diligently pursue our land and expand strategy, we continue to reap the rewards of delivering superior return on investment, maintaining our impressive ROIs of over 10:1 for HCP messaging. This achievement holds particular significance with the pharmaceutical landscape. We're achieving ROIs of 2 to 3x spent has traditionally been the benchmark. We believe we turned a significant corner in recent months 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 our financial details. Ed?

[Edward Stelmakh, executive]

Thanks, Will, and good morning, everyone. As noted previously, a transcript and a link to an audio recording of this conference call will be provided on the Investors section of the company's website. Fourth quarter revenue came in at $28.4 million, an increase of 44% from the $19.7 million recognized during the same period in 2022. This included revenues from our legacy core and noncore business lines as well as from approximately 2 months of Medicx Health-related revenue streams. Going forward, we will be reporting both OptimizeRx and Medix Health as one consolidated business. Meanwhile, our previous noncore business lines that we have called access and patient engagement will no longer be revenue streams for the company, and we have eliminated associated costs to these business lines. On a pro forma basis when stripping out these noncore business lines from our 2023 results and accounting for the full year benefit of Medicx Healths financial results in our 2023 actuals, our revenue for calendar year 2023 would have been approximately $91.8 million, which we are utilizing as our comparison point to share progress going forward. Meanwhile, our net loss came in at $7.2 million for the fourth quarter of 2023 compared to a loss of $0.3 million during the fourth quarter of 2022. Our adjusted EBITDA came in at $5.8 million for the fourth quarter of 2023 compared to $3.9 million during the fourth quarter of 2022. GAAP to non-GAAP reconciliation table has been included in the Investor Relations section of our website at investors.optimizerx.com, the events and presentations further. We ended the year with cash and short-term investments totaling $13.9 million as of December 31, 2023, as compared to $74.1 million on December 31, 2022. The majority of the year-over-year decline was due to our acquisition of Medicx Health and share repurchase program, to which we bought back 126,990 shares of common stock for $7.5 million during 2023. Our current debt balance currently stands at $38.3 million. Recall to help fund the $83.9 million cash portion of the Medicx Health transaction, the company $2.4 million in debt financing and repaid of $1.7 million of principal during the fourth quarter. We continue to believe we are well funded to execute against our operational goals. And with that, I would like to turn the call back over to Will. Will?

[William Febbo, executive]

Thanks, Ed. Operator. Now let's move to Q&A.

[Operator]

We'll now conduct a question-and-answer session. [Operator Instructions] One moment please while we poll for questions -- our first question is from Sean Dodge with RBC Capital Markets.

[Sean Dodge, analyst]

Congratulations on the strong finish to the year. You signed, Will you said 24 death deals in '23 that was up 4x versus the previous year. So lots of momentum there. I guess anything you can share on how demand or activity around those has carried into this year. You had mentioned some macro headwinds before. Have those continued to dissipate?

[William Febbo, executive]

Sean, yes, thanks. So yes, on macro, for sure, we're seeing sort of a return to what we saw in '21 in terms of our clients making decisions flow, seasonality, all that good stuff, FDA approvals, all tracking towards previous dip. And yes, the -- and we'll obviously talk to Q1 in May. But it's really resonating with the clients. I think we talked a lot about it after the Q3 report that clients are really -- the adoption of digital has also forced the adoption of accuracy reporting data-driven outreach less is more, if it's effective. And we're in the right place at the right time there with this innovative approach. So yes, continued adoption. And Steve, just to say a couple of top-level words on the sales training and such, but very positive momentum and really encouraged by the team's ability to deliver in a way that the clients respond to and in a way that's efficient around digital. Steve, do you want to just chime in a little bit.

[Stephen Silvestro, executive]

Yes, happy to. Sean, good to hear you. I think one of the other things that's been really encouraging is that the initial set of GAAP deals that we did previously have renewed and those same set of clients have expanded. So I think that's also a positive confirmation on value prop and what we're delivering to those clients, Sean. So that land and expand strategy that we talked about previously is really coming to fruition. And then I think as Will highlighted, the team's ability to get a little bit more technical and approach the client in a different way. The sale is slightly different, right? It's more of a -- much more of a strategic sale in that you're having a conversation around patient profiles and strategies a little bit more mature than we would have had in times past. So really encouraged by that. And I think that makes it significantly more sticky. As Will said, we'll have more positive news to share during Q1, but really encouraged by what we're seeing on the DAAP front.

[Sean Dodge, analyst]

And that's a good segue into my follow-up. Will you, in your prepared remarks, talked about omnichannel and kind of trends within big pharma. You've done the Medical acquisition that had a lot of nice breadth for you. When we think about kind of omnichannel, do you have everything you need there now? Are there other areas or capabilities do you think could make sense to bolt on in the future?

[William Febbo, executive]

So yes, I would say, look, we have no major CapEx. We've got the tech that can enable what we're doing. We're constantly looking at different types of channel partners. And I think, Sean, that will be an evolution pretty much every year because there's just so much changing so fast the way doctors and patients interact with their own medical records, with their own doctors with their caregivers. And so luckily for us, we have a team, and that was enhanced with a part of the Medicx team as well that's completely focused on channel. And omnichannel is really something that shifts with the needs, right? It's not a stagnant thing. You don't sort of get there and you're done. It's constantly evolving. But the good news is we've got a lot of reach today that is highly relevant that gives us growth. And we've got the team to be keeping their eye on the ball on what's next in terms of enablement for communication with both HCPs and patients and consumers health.

[Sean Dodge, analyst]

Okay. That's great color. And congrats again.

[Operator]

Our next question is from Stephanie Davis with Barclays.

[Stephanie Davis, analyst]

You're talking about trimming costs further, but you're talking also to a few different initiatives that wouldn't normally require some headcount investments such as the [indiscernible] and the Walmart partnership. Can you just walk us through how to think about that?

[William Febbo, executive]

Yes, Stephanie. Good to hear your voice. So now...

[Stephanie Davis, analyst]

Long time.

[William Febbo, executive]

Yes, I do, right. Great conference, by the way. Thank you. So no, we're not looking at additional costs, right? That was just all messaged last year, and we're just reminding everyone that we completed it. The beauty of this model, Stephanie, is where -- it's a technology platform, right? And we don't -- we're not an agency, we don't generate content. We help our clients get the content that they've already generated to the right people at the right time, whether that's a doctor or a patient. So we're -- our additional people this year will be commercially focused. And also, just as a public company, having more heft as we get over $100 million in revenue. And then as we've messaged before on the reporting side, that's a key piece now that pharmaceutical companies have adopted point of care digitally as a channel. All the standards go up and transparency needs to go with it as well as measurement. So now this is a very scalable model. We've shown it before in past years, even as a smaller company, if investors go back and look, and I think they'll see that as we progress through the year.

[Stephanie Davis, analyst]

Awesome I do have to ask because we have seen a public peer go through some issues when delaying their reporting. How should we think about the cost associated with that because there usually is a little bit more accounting costs and some management attention, if you will, when that happens.

[William Febbo, executive]

Yes. No problem. We did a lot last year. And again, as I said in my prepared remarks, I'm super proud of the team because for a small company, it's no small feat to buy one out-license in tech and simultaneously see your core starting to grow, which you believe, but it's -- when it happens, it happens fast. And as we said, all that, coupled with reviewing material weakness that we have a remediation plan for 2024, everything is just taking longer. So yes, there will be some incremental costs for third-party assistance on the acquisition stuff. A lot of the cost was already rolled into the acquisition costs once we actually file people will see that. So I wouldn't anticipate a ton, but there will be some additional.

[Stephanie Davis, analyst]

Awesome good to here. Good luck with this brand.

[Operator]

[Operator Instructions] Our next question is from William Wood with B. Riley Securities.

[William Wood, analyst]

Congratulations on a nice fourth quarter. Just a couple from us. Was just kind of curious I wanted to dig in a little bit more to DAAP expectations, the debt growth expectations for this year. You obviously noted '24 at the close of next year. Should we -- how should we be thinking about this growth for this year in terms of the number of deals as well as maybe potentially commenting on pharma partners that you already sort of have in the queue to sign up for the year?

[William Febbo, executive]

Yes. We don't want to get -- well, it's good to hear your voice. We don't want to get too far ahead because we're going to report basically a month or so in Q1, but very positive momentum. We'll give an update on the closes we've seen in Q1 and -- but we don't want to get ahead of that. But I just -- I think what's telling and what Steve mentioned is we went from 2 to 6 to '24 100% of which renewed from the and into the 6, the 6 went into the '24. And we're really seeing cases across multiple therapeutic areas and also different needs by the client. And I think what's going to be most encouraging when we talk about it, is just seeing how this can now apply to the DTC part of our business because their method was -- is spectacular on creating micro neighborhoods, but when you can layer in DAAP with the algorithm, it really -- the 2 together, first of all, simplifies life for our clients. we think, increases quality of outreach and will certainly drive better prescription lift. So stay tuned. I can't give you any hard numbers, but really positive momentum year-over-year and certainly what we're seeing initially.

[William Wood, analyst]

I appreciate that. That's very helpful. In terms of your medixc, you mentioned that it was almost complete or near completion. I'm just curious when we should be expecting for that to complete? Is it month time line? Or is it longer -- or slightly longer term? And then how should we think about that is adding to the growth and the expectations for 2024 coming?

[William Febbo, executive]

Yes. So we've got a pretty seasoned team with Ed, Steve, Mario and myself and then the whole team below us. A lot of us have done acquisitions. We tend to be pretty conservative on the first year. And I will say the process of integration was really well run at Stelmakh, our CFO and COO, set up a particular office to do that. And all the major stuff is done, and now it's fine-tuning and then it's just operations. I think the part that on the commercial side, which is where the growth can come from to your question, we did a great training in January, both teams together. I was there as well. If the entire senior team was there. And I think that was really brilliant. It just brought together -- first of all, people that already work together. They've gone through the knife-fight of digital spend before it was cool. And then also got their head around what DAAP is. So we're really excited about that. And in Q1, we can give a little bit more color in terms of GAAP contribution growth, percentage of overall revenue that in, but we'll be there soon enough.

[William Wood, analyst]

Got it. Appreciate that. And one last quick one. Could you remind me what Medicx gross margins were and -- or historically have been? And then how you would expect those to sort of integrate into OptimizeRx's and how sort of the outlook for the future on how we should expect those to integrate.

[William Febbo, executive]

Sure. Ed, do you want to take that?

[Edward Stelmakh, executive]

Yes, William. Yes, so the margins for Medicx, I think there were so for Q1, Q2, taking a look at those filings. As far as full year margin is concerned, as we said before, we're not going to be swinging out their numbers. We're pretty much now a fully integrated business. So the margins are all baked into our current guidance as one company.

[Operator]

Thank you. There are no further questions at this time. I'd like to hand the floor back over to William Febbo for any closing comments.

[William Febbo, executive]

All right. Thank you, operator, and thank you, everyone, for joining us today. I trust you share in our excitement and can perceive the positive momentum we built throughout the second half of 2023 and now into '24. As we embark on our financial and operational journey for the year ahead, I'm pleased to say that we are stepping into this new chapter on solid gram. Our reach with health care professionals and patients has undergone a remarkable expansion, thanks to our proprietary AI models. This has allowed us to overcome many of the challenges we faced previously. Today, we proudly offer a comprehensive solution that seamlessly integrates various elements into the powerful Agile strategies. These strategies address critical challenges such as brand awareness and education, affordability and the recruitment of hard-to-find patients. These are the very issues our clients, doctors and patients encountered daily in today's health care landscape, and we are honored to be part of the solution. Our commitment to generally aiding doctors and patients in aligning on care is what truly drives us as a team. Thank you for your time today, and I eagerly anticipate our upcoming discussion on next quarter's earnings call. Wishing you all a fantastic remainder of the day. Thank you. Operator?

[Operator]

Thank you, sir. Before we conclude today's call, I would like to provide the company's safe harbor statement that includes 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 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 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 and a transcript and a link to an audio recording of this conference call will be provided on the Investors section of the company's website. Thank you for joining us today. This concludes today's conference call. You may now disconnect your lines.