OPRX - NASDAQ

Good afternoon, everyone, and thank you for joining OptimizeRx's Second Quarter Fiscal 2025 Earnings Conference Call. We have with us today Chief Executive Officer, Steve Silvestro; he is joined by Chief Financial Officer, Ed Stelmakh, Chief Legal Officer; 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. The company will also be discussing certain non-GAAP financial measures, which it believes are useful in evaluating the company's operating results. A reconciliation of such non-GAAP financial measures is included in the earnings release the company issued this afternoon as well as in the Investor Relations section of the company's website. I would like to remind everyone that today's call is being recorded and will be made available for replay as an audio recording of this conference call on the Investor Relations section of the company's website. Now I would like to turn the call over to OptimizeRx's CEO, Steve Silvestro. Mr. Silvestro, please go ahead.

Thank you, operator, and good afternoon to everyone joining today's second quarter 2025 call. Overall, we had a strong second quarter of 2025 with results ahead of both consensus estimates and our internal expectations. Recent momentum has continued with Q2 revenues increasing 55% year-over-year to $29.2 million, with adjusted EBITDA coming in at $5.8 million, an improvement of over $5 million year-over-year. Moreover, our contracted revenue continues to increase to more than 30% year-over-year, which positions us favorably in the second half of 2025. I believe this is a clear indicator that our focus on operational excellence while ensuring we delight our customers and forge strong relationships with valued business partners is bearing fruit. Before moving on, I want to take a moment and thank our market-leading team. We deeply appreciate the dedication and hard work of everyone at OptimizeRx as we navigate an increasingly complex, dynamic and still emerging digital pharma marketing place. The industry is undergoing a significant shift and our products and services are poised to fundamentally reshape how pharmaceutical companies, patients and prescribers engage. Our mission-driven culture not only fuels this transformation, but also positions us to attract, retain and strengthen the critical relationships a leading technology company needs to be a trusted and enduring partner. With that said, I'm happy to say we are increasing our guidance for the year and are looking for revenue to come in between $104 million and $108 million, with adjusted EBITDA to be between $14.5 million and $17.5 million. Moreover, while it's still very early, initial indications for 2026 appear promising. As a result, we feel comfortable with consensus current revenue and adjusted EBITDA projections for 2026, and we will give formal guidance as we get deeper into the 2026 RFP process. In addition, we paid down $4.5 million of principal during the second quarter, which was $4 million above our debt payment schedule. At this time, given the free cash flow we're seeing in our business, we intend on paying down our debt at an accelerated rate and don't believe we'll need to access the equity capital markets for the foreseeable future. As you can see, we certainly believe that we're hitting a stride. Our disciplined cost management and sharp cross-selling strategies rooted in helping customers optimize budget allocation to drive script lift are fueling strong momentum heading into the second half of 2025 and beyond. Our strong second quarter and first half results clearly show that the Rule of 40 performance is no longer a distant goal. It's firmly within our sights. Perhaps most notably, average revenue over the last 12 months for our largest 5 customers now stands at over $11 million average. We believe OptimizeRx is uniquely positioned to drive meaningful value creation and deliver sustainable, long-term shareholder growth, powered by one of the nation's largest point-of-care networks. We enable pharmaceutical manufacturers to reach health care providers directly when it matters most. Building on this powerful foundation, we've integrated a purpose-built omnichannel technology platform, featuring advanced patient finding tools like DAAP, Micro-Neighborhood Targeting that are redefining how pharmaceutical companies, physicians and patients connect, communicate and act. This innovative approach is not only transforming engagement across the health care ecosystem, but also helping to improve patient outcomes. These advantages provide us with a durable and defensible competitive moat. With unmatched access to both the point of care and direct-to-consumer channels, we believe we are uniquely positioned in the market as the only player capable of engaging providers and patients at scale. This strategic positioning has enabled us to build the industry's most comprehensive and integrated solution set, allowing us to serve a broad range of customer needs across the full product life cycle, drive deeper customer relationships and capture greater share of long-term value. As mentioned on previous calls, as our business continues to evolve, a key focus for the company will be drawing greater attention to our reach and scalability while positioning ourselves as a strategic partner in addressing some of the most critical commercialization challenges facing pharma today. These include improving brand visibility, reducing script abandonment, enhancing interoperability and supporting the growing shift toward more complex and costly specialty medications. I'm confident that success in these areas, combined with the strong performance we are already delivering through the solutions that deliver high ROIs and strong script lift will drive significant shareholder value over time. Moreover, this momentum will position us to capture greater market share while also expanding the overall size of pharma's multibillion-dollar digital spend. Our customers remain deeply embedded within our ecosystem of offerings, and it remains our goal to help them stay present through the patient care journey across the integrated HCP and DTC business. And with that, I'd like to turn the call over to our CFO, Ed Stelmakh, who will walk us through the financial details. Ed?

Thanks, Steve, and good afternoon, everyone. A press release was issued with the financial results of our second quarter ended June 30, 2025. 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. Second quarter revenue was $29.2 million, an increase of 55% from the $18.8 million we recognized during the same period in 2024. Gross margin for the quarter increased from 62.2% in the quarter ended June 30, 2024, to 63.8% in the quarter ended June 30, 2025. Year-on-year gross margin expansion is tied to a favorable product mix, economies of scale as well as a favorable channel partner mix. Our operating expenses for the quarter ended June 30, 2025, were essentially flat year-over-year at $15.4 million despite the significant revenue growth we showed. We had a net income of $1.5 million or $0.08 per basic and fully diluted share for the 3 months ended June 30, 2025 as compared to a net loss of $4 million or $0.22 per basic and fully diluted share for the same 3-month period in 2024. On a non-GAAP basis, our net income for the second quarter of 2025 was $4.5 million or $0.24 per fully diluted share outstanding as compared to a non-GAAP net income of $0.3 million or $0.02 per fully diluted share outstanding in the same year ago period. Our adjusted EBITDA came in at $5.8 million for the second quarter of 2025 compared to $0.5 million during the second quarter of 2024. Operating cash flow was $8.4 million for the first half of 2025, and we ended the quarter with a $16.6 million cash balance as compared to $13.4 million on December 31, 2024. The remaining principle on our debt financing currently stands at $29.3 million, and we paid $4.5 million in principal during the quarter, which was $4 million ahead of our payment schedule. At this time, we intend to deploy at least a portion of our free cash flow to pay down the principal on our loan faster as we look to continuously lower our cost of capital. With that said, we continue to believe that our healthy balance sheet will help us execute against our operational goals. Now let's turn to our KPIs for the second quarter of 2025. Average revenue per top 20 pharmaceutical manufacturer now stands at $3.1 million. Net revenue retention rate remained strong at 121%. Meanwhile, revenue per FTE came in at $767,000 tapping the $658,000 we posted in Q2 2024. We are encouraged by the continuing improvement in our KPIs as we continue to execute against our strategy of driving profitable growth as a leader in our space. Now with that, I'll turn the call back over to Steve. Steve?

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

[Operator Instructions] Our first question comes from Richard Baldry with ROTH Capital.

Congrats on an incredible quarter. So many things to ask. I'll try to narrow it, but last quarter, you talked about your typical revenue cadence being 15% to 20% in Q1 and 20% to 23% in Q2. If we look at what you've now done in the first half and used those cadences, revenues will come in sharply above even your increased guidance be closer to $128 million if you use the midpoint. Can you talk about whether there's anything onetime in Q2? Any outliers there that we need to pull away to make that cadence sort of more normalized. So how do we think about that given the extraordinary upside you just did on the revenue number and earnings for that matter?

Rich, thanks for the question. Great to hear your voice. We did have in the first half of 2025 a little bit of managed service revenue still in the revenues. And so what we're guiding to on the full year, we think, is, again, conservative but achievable. We're going to continue to hit that drumbeat of conservatism, but not sandbagging, but being conservative [Audio Gap] second half, I think we feel comfortable with our updated guidance. Ed, anything you'd add?

Yes, I'll add a little bit to that. So as Steve said, first half definitely had a little bit of managed service revenue that was above our expectation. Just so you know managed service revenue typically is contracted for 3 to 6 months in duration. And it is something that comes a little bit of a surprise to us in terms of any upside or any extensions to existing contracts. So we typically don't forecast it in our numbers and that what you saw in Q2, it's kind of exactly that phenomenon where we're surprised -- we've a little bit higher managed service revenue than we had in Q1. But currently, we don't expect that to continue into the second half.

Got it. Then on the cost side, OpEx is basically flat despite revenue is up 33% sequentially and at some point, that can't be sustainable. How do we think about OpEx in the second half?

Yes, thanks. I think what we're trying to show in the model there, what we are showing in the model is operating leverage, Rich. So you know we made some pretty significant investments in the back half of last year and really in Q1 of this year to operationalize more of our technology. Part of what you're seeing on the OpEx there is a lack of need to add more price to drive revenue. I think we are -- right now, we've got the team that we [Audio Gap] well above what we're currently looking at for 2025. So I don't expect that you'll see OpEx going into the back half of the year, although a need may come up, but we feel pretty good about the OpEx number.

Just to add a little bit more color. Yes. So basically, we are accruing for our current forecasted range as far as bonuses and variable comp. So there's no kind of true-up in the back end of the year. So I would agree with Steve that you can expect roughly the same run rate in the second half as in first half.

Okay. Then I'll try to make this the last one. But the ARPU of your top 20 grew pretty strongly, but at the same time, they're a smaller percent of total revenue, so it fell from 66% to 59%. So it argues that the rest of your non-top 20 revenues are growing faster. Is that a function of faster logo adds, do you think, or is it a function of the ARPU for those non-top 20 growing at an even faster pace?

Yes. It's really a function of those under the top 20 starting to grow a little bit faster. I mean we had -- I think we shared broadly on the last call, we had a couple of sort of midsize or smaller accounts start to join the ranks of some of the bigger, larger top 10 that we've been mentioning, which we think we've been very encouraged by that. So the growth in the mid-cap and small businesses is accelerating, and we think that's going to continue to happen. So it's not that the top 10 is doing worse. In fact, the average revenue per top 10 continues to improve off of what we shared last time. So we're feeling pretty confident going into the back half. Great, great question. Thank you.

Yes. So I was saying I'm last, but let's do one last one. So if I did a Rule of 40 on the quarter, I get 20% adjusted EBITDA and 55% growth for 75. And at some point, that's almost a ludicrous number. So again, do you feel like the OpEx side needs to kind of grow all quicker to keep up to this pace, or I know it's a digital and scalable business, but it's sort of hard to grow this fast sometimes what that would have to invest in the business.

Yes. Ed, I'll let you comment on that one again.

Sure. Yes, look, I mean, as we said, it's a one quarter phenomenon right now. We're not projecting anything near that growth rate for the year. I can tell you internally, we don't feel overly stressed by this kind of growth rate at all. So if it continues to grow even at half that rate, we feel like we're well staffed and equipped to handle the growth rate. After a certain point, obviously, it's not going to last forever, but certainly in the foreseeable future.

Congrats on amazing quarter.

Thanks, appreciate all the support.

Our next question comes from Eric Martinuzzi with Lake Street.

Yes, I wanted to dive in on the contracted revenue being up 30% year-on-year. What can you tell us about the types of revenues that are contracted here? Are these pointed that B2C, are there practitioners, the length of the campaigns? Are we talking a 60-day spend, a 6-month spend?

Eric, great to hear from you. I'll give a little bit of voice over and then have Ed and Andy chime in, too. But contracted revenue right now is following the exact same product mix that it has in the past. So it's a blend of HCP and DTC business. Both businesses growing at really solid rates, I think, at this point in terms of revenue lines. We are seeing good growth in our audiences. So our In terms of length of contracts, it's the same as it's been in the past. So nothing to report there in terms of multiyear yet, although we're Yes. No, I would just add that it's a broad based ramp-up in contracted revenues, faster than I've seen since I've been here. So certainly increase the ability to market efficiently since they have less dollars to be able to spend. So our technology starting to be more proven. they're in the top 20. So while the dollars are less per logo typically, they are growing at a faster rate and starting off at a smaller base, contracts. I guess what percent of your revenue is now subscription based? And how should we think about the gross margin trajectory DAAP business continues to grow at probably an outsized pace, which is good for us. We're not breaking apart. As you know, DTC of contracted revenue specifically, it's as good as it's been. And we're feeling strong going into the back half. working on working on trying to lengthen those contract terms. Ed, anything you'd add?

to me, it's a nice signal of adoption and appetite for what we bring to the market certainly in the current year.

When you say broad-based, you're talking about both top 20 and below top 20. Is that what you mean?

Yes, as you can see, you've got top 5 growing nicely top 20 and then beyond that. And since we don't disclose the actual mix underneath the hood, both HCP and DTC side of the business are performing really well.

Our next question comes from Anderson Schock with B. Riley Securities.

Congrats on a really impressive quarter. So I guess, could we just talk about the reduction in top 20 pharma revenue concentration? Are there better contract economics with mid-tier pharma companies? And maybe do you have a target mix for this?

Yes. Andy, why don't we have you take that question?

Yes. I think it's just a function of efficiencies being taken place at smaller gas companies. So they're looking to save wallet and And so we're just seeing them start to adopt at a faster rate. But keep in mind, there's a lot more logos from the 20 to 100 mark, and if that makes sense.

Okay. That's helpful. And then on the last call, you reported 5% of projected annual revenue converted to the DAAP subscription for the back half of the year as DAAP subscription revenue continues to scale?

Ed, why don't you take that one?

Yes. Yes. So again, we don't break it out, but the 5% number still is valid. And right now, we have kind of a pipeline line of sight to about 10% for the year, assuming the pipeline closes and converts.

The next question comes from David Grossman with Stifel Financial.

Just a couple of quick follow-up questions here to maybe some things that were asked. I think last quarter, Steve, you gave us a metric in terms of your visibility on your compare -- at the end of March compared to end of March last year. Can you do the same for us for the end of the June quarter?

Yes. Thanks, David. Good to hear from you. We're not going to give a number on contracted revenue other than to say, at this point, we're 30% or better than we were same time last year. So I think we're pretty confident in being able to share that. If we're going to stop sharing an actual contracted revenue number. And you know that we're not sharing. We haven't been sharing a pipeline number throughout the year this year. So I would say what we shared with you last time, still valid. Just think of that growing at a 30% clip or better, and that's kind of where things are.

Got it. And in terms of your year is always so back-end weighted to the fourth quarter. Does that improve visibility to reflect the outperformance in the second quarter, or does it give us better visibility on the fourth quarter?

That's a great question. It gives us better visibility on fourth quarter. So I think we feel more comfortable, which is why we've increased guidance and given a better view into what we think the full year is going to look like. What we don't have currently baked into our visibility is really the buy-up seasonality that we've seen in this business year-over-year in the fourth quarter, David. So we've not included that in the forecast or the guidance. And I think that's in line with our general sort of conservatism that we're going with here. So if you're -- and I know you know this business intimately. So we've not added any number for the fourth quarter into anything that we've shared, nor will we.

I think you -- both you and Ed mentioned managed services, and we all know the episodic nature of that and unpredictability. So as you look at the outperformance in revenue in the quarter, how much of that was managed services versus other areas of the business?

Yes. We don't break it out, but I wouldn't look at it as -- in the quarter, I would look at it as in the first half. There's still some opportunistic managed service revenue coming in. We've taken that into account and what we've shared for the second half in terms of our restating and projection on the guidance, the increase. And so what's reflected in our increased guidance takes that into account. Ed, I don't know if there's anything else you'd want to say on that, but...

Yes. I mean it's clearly material, right, but material to an extent of changing the feeling or skewing the phasing of our revenue burn through the year, but certainly not material enough to be the vast majority or even the majority of our business. So it's certainly a number that's meaningful but I wouldn't look at it as the key driver of Q2 performance.

Got it. And just one other follow-up on the operating expenses. I know you said flat in dollars the balance of the year. Is there anything you can help us to understand as we think about -- I mean, you did say you were comfortable with the revenue. I think I heard you right, you said revenue and margin for next year in consensus. How do you want us to think about the leverage in the business going forward? Any kind of signposts you can give us that would be helpful.

Ed, why don't you take that?

Yes. So I would say this year, from an OpEx perspective is relatively baked. So I would kind of utilize what you're seeing right now as a run rate. Going into next year, I would apply the typical merit increases, variable comp increases that come along with a growing business. As far as medium business are concerned, I think we can run this business with roughly the same headcount probably to $150 million in top line or thereabouts. So any additional investments will be more kind of strategically oriented that probably have to do with either investments in additional channels or technology expansion to continue to expand their portfolio of solutions and those will be capitalized.

Got it. All right. Great. I guess the only other question really is a higher level one. I'm just -- what you're seeing out of pharma, it's been all over the board in terms of their results this quarter. They've got some regulatory headwinds they're dealing with. Is there any kind of flow-through that you're seeing one way or another as you kind of talk to some of your larger pharma clients, or is this all just kind of business as usual for the most part?

Thanks, David. I mean we're definitely seeing that pharma is more focused on efficient ways of driving revenue. And I think they're still digesting what's going on in the general regulatory environment, also with the White House and some of the potential changes there. So that the focus we're seeing there is looking for efficient ways to continue to communicate with patients and physicians and drive revenue in scripts. And we're lucky that we're in a good strategic position in terms of driving revenue in a very efficient and cost- effective way at scale with reach. And so what we're also seeing is as they're evaluating other players that are in the marketplace, when those players have a lower reach, less reach than we might or are less accurate, can't prove out revenue, then on the ability to provide reporting or insights, pharma is very quickly moving past those businesses and moving on to businesses that can provide them the data and the analytics that they need to continue to invest. And so that's kind of a macro trend we're seeing across the board in digital, and you can kind of see it in all the businesses that you guys follow, you'll start to see it more and more prominently.

Our next question comes from Jeff Garro with Stephens, Inc.

Maybe a follow-up on the last one on the macro environment and those trends that you discussed. Curious how much that's potentially leading to any pull forward of spend given the potential uncertainty looming around some of those topics and then how those different trends that you discussed are impacting the early field that you're getting on the selling season. It sounds like there's still a bit of energy and positive trend and indication, at least towards OptimizeRx, but would love to hear more on kind of how the environment impacted Q2 and the first half in terms of pull forward and then how it's impacting the go-forward view for your customers?

Thanks, Jeff. Yes, we're not seeing any pull forward right now in terms of revenue that's coming in. We are seeing a willingness to engage in conversations a little bit earlier and make plans for the back half earlier, which I think is good. But our contracted revenue is very smooth in terms of what we would anticipate for the year. So not a traditional kind of spend the money now because we don't know what's going to be there in the back half. We're not seeing any signs of that. And our commercial team continues to report back that second half, they feel is steady as we've shared, as you've heard from Ed, myself and Andy. So nothing on the pull forward. Regarding the second part of your question around investment or looking at companies like OPRX, I think the most important thing you're looking for is the ability to continue to connect with doctors and with patients in a digital way that's efficient. And we are still one of the only players out there that can do it. We are arguably the only player that can really do it at scale across DTC and HCP. And I think they're starting to realize the economies of scale sit within this business. And so that's why you're seeing a longer-term investment being made, I think, in the business. Andy, you're tracking this very closely too. Let me put it over to you and have you add any color that you'd like.

No. I think you really hit the nail in the head there, Steve. I don't think there's much of a pull forward at this point in time. I think pharma is really engaged with the digital channels. And I really think what's going on right now is you're seeing them move to higher ROI more efficient channels. And there is some just risk with general trends from the new administration. But I think that's more affecting legacy ways of commercializing the business and is actually resulting in companies leaning forward more into digital.

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Steve Silvestro, for any closing remarks.

Thank you, operator, and thank you all for joining us today. We're excited to be building our strong operational and financial momentum. Our foundation at OPRX is solid, and we're confident in the path ahead. What you heard today makes us confident in our abilities to hit our short-term and long-term targets, and I remain very enthusiastic about the future of our business. We look forward to speaking with you again on our next call and meeting many of you in the upcoming investor conferences and in one-on-ones prior to the next earnings call. Have a wonderful evening, everybody. Thank you.