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spk02: Good afternoon, everyone, and thank you for joining OptimizeRx's second quarter fiscal 2023 earnings discussion. With us today is the Chief Executive Officer of OptimizeRx, William Febo. He is joined by Company Chief Financial Officer, Ed Stelmack, Chief Commercial Officer, Steve Silvestro, General Counsel and Chief Compliance Officer, Marion Audence 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. Instructions are included in today's press release and in the Investors section of the company's website. Now, I would like to turn the call over to OptimizeRx CEO, William Febo. Sir, please go ahead.
spk00: Good afternoon, everyone, and thank you for joining our second quarter earnings call today. While we are disappointed with the quarter's results, we are seeing unprecedented change in the pharma industry in their adoption of digital and tech-enabled marketing solutions. We are now coming out of the post-COVID-heavy piloting phase within pharma, and the pace of decision-making has slowed as they look for scalable partners. We saw this firsthand with many clients re-evaluating their marketing models, product delays, and a higher demand for data-driven solutions. Despite this, we remain excited about our business, and we are laser focused on optimizing our resources on the future of digital marketing in healthcare. In Q2, we saw revenue push into the second half due to clients needing more time for medical, legal, and regulatory review. While delays are frustrating and impactful at our stage, They are typical in today's environment, and we do not view them as a negative indicator. We have solid confidence in our core offerings, which built us up to where we are today, and we believe it will drive growth into the future as we get past the headwinds mentioned on previous calls. Our clients are still experimenting with new digital solutions for customer engagement and patient access. As we've partnered alongside them on their journey, we've seen many areas of opportunity, We've identified those which we believe we are best positioned to address based on how our customers buy from us today, and we plan to optimize those prospects through the second half of 2023 to position for growth in 2024. We have a strong presence and awareness among our clients, partners, and the market. Our balance sheet and shareholder base are terrific, and as you will see when you review the numbers, even with lighter top line than expected, we were able to limit spend and post an effectively break-even non-get net income. Our team is solid, and we're very focused on delighting our clients by continuing to expand with additional channels and technology our clients want to leverage into the future. So how do we address this dynamic market and come out stronger and bigger? With COVID, the enablement of physicians and patients to rely on digital connectivity has skyrocketed. In response, we've seen a rapid rush of startups, company pivots, and roll-up strategy, which has crowded and distracted the market. As a result, our clients are looking for a higher level of transparency as to their reach and return with point of care than even six months ago. The compounding effect of this dynamic has been a slowdown in decision-making and spending within the pharma community. While we are not alone in seeing the effect among our peers, We believe this will subside as we get through 2023. Pharma will have a clearer view of their preferred partners around digital commercialization, and we believe we will be one of those partners. To ensure we remain at the forefront of our pharma clients' needs, we will deploy our resources to the areas with the overwhelming majority of our revenue. In the second half of 2023, we will also reduce our cash OpEx run rate going into 2024 by at least 10%, which would be based on the expense run rate we had during the first quarter of 2023. Our focus will be to continue to build out our platform for our clients with renewed attention on innovation and scaling closer to our core. Going forward, our primary emphasis will be on our AI-enabled healthcare technology platform, which helps pharma acquire and onboard patients. This is the most differentiated and growth-oriented part of our business, one in which we have seen 186% year-over-year growth, and it is still climbing. We intend to keep it that way in the face of shifting markets and customer expectations by directing our efforts towards that part of the business that is best performing. Three years ago, we launched an RWD AI solution, enabling life science organizations to engage doctors at point of care. We have expanded our AI solutions this year to accommodate data sources that go beyond the traditional RWD and to incorporate digital mass media channels alongside a point of care to build a truly integrated healthcare-focused omnichannel platform, which is already producing excellent results for our clients. We have top pharma clients engaged and a pipeline here which will get us back to growth. In Q2, we closed three additional AI deals with our clients. Recall, we started this offering over three years ago, meaning we have been in the market longer than anyone in this space. More importantly, the wins are indicative of a rapid industry adoption of AI for customer engagement and the use of machine learning to digest, distill, and interpret massive datasets to drive valuable connections between doctors, patients, and manufacturers. This enables our customers to streamline precise engagement at scale and changes the dynamic of decision-making along the patient journey for patients and providers alike. We expect to see continued infusion of new data and customer scrutiny into the marketing approach. We have a head start here with both years of our own proprietary engagement data experience putting that alongside clinical data, and patent pending AI methods at the point of care to bring healthcare stakeholders together in support of better care. We are the company best positioned to even the playing field for pharma between traditional digital media, such as social and web, and provider focused engagement at the point of care. As we scale, we will help our clients be agile and data driven with their marketing efforts. While all of these changes have implication in the short term, we firmly believe that we are in the right space at the right time of a very nascent but growing AI movement as it relates to commercialization at point of care. Our long-term trajectory remains unchanged as per our update in the spring. In the near term, aside from differences between origination of proposals and the closing of deals, our pipeline remains very healthy And we currently have nearly 50 active contracted enterprise deals worth approximately 25 million. We are very excited about our new path forward as we differentiate ourselves from our competitors that don't have our point of care connectivity alongside AI at their disposal. We are choosing to focus on the fastest growth segment of business where we are ahead of the new market entrance. We believe AI driven engagement is an area that will come full circle in the next two to five years. and where we will become the market-leading, transforming standard industry best practices and being a true partner with our clients. Now with that, I'd like to turn the call over to our CFO and COO, Ed Stalmach, who will walk us through the financial details for Q2. Ed?
spk05: Thanks, Will. As with all our calls, the press release was issued with results of our second quarter and the June 30th, 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 10Q. Second quarter revenue was $13.8 million, a slight decrease from the $14 million we generated in the same period in 2022. The decrease in revenue was primarily due to macro headwinds and program approval delays. Meanwhile, a gross margin decreased from 64.3% in the quarter ended June 30, 2022 to 56.6% in quarter ended June 30, 2023, slightly below the lower end of our previous annual gross margin guidance range. The decrease was due to solution and channel partner mix, including the impact of delayed decisions on our RWD AI programs, Given these dynamics, we're adjusting our gross margin range for the year from 58 to 62% to a new range of 55 to 59%. Our operating expenses remained relatively consistent year over year and came in at $12.7 million for the three months ended June 30th, 2023 versus $12.9 million for the same period in 2022. We had a net loss of 4.2 million, or 24 cents, per basic and fully diluted share for the three months ended June 30th, 2023, as compared to a net loss of 3.9 million during the same period in 2022. On a non-GAAP basis, net loss for the second quarter of 2023 was 0.2 million, or one cent, per basic and fully diluted share outstanding, as compared to a non-GAAP net income of 0.7 million, for $0.04 per basic and fully delivered share in the same year-ago period. Upgrading cash flow came in at a loss of $2.4 million for the quarter and was materially impacted by upfront integration fees paid to our channel partners, which are being amortized on our P&L over the life of the contract. Our balance sheet remains strong with cash and cash equivalents totaling $62.7 million on June 30, 2023, compared to $74.1 million on December 31, 2022. The majority of the decline was due to our share repurchase program, for which we bought back 526,999 shares of common stock for $7.5 million during the quarter. We remain well-capitalized to execute against our growth strategy and believe our balance sheet positions us to further invest in our core business while driving profitable growth. In addition, we are actively looking at M&A opportunities that fit within our strategic priorities as more attractive valuations were compared to last year. We remain confident in our long-term growth outlook. However, given current market conditions, we are revising our 2023 full-year revenue projections to come in between the mid-50 to low-60 million dollar range. Our new range is built around reasonable applications for existing backlog, mid-year upsells, and new program launch opportunities. Now let's turn to our KPIs for the second quarter of 2023, which have largely stabilized compared to the prior quarter. Average revenue per top 20 pharmaceutical manufacturer is stable at $2 million. It will continue to work 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. Net revenue retention rate is showing improvement at 89% from 86% in Q1 2023. Meanwhile, revenues per FTE came in at 560,000, slightly below 605,000 in Q1 2023. As you can see from our KPIs, our sequential quarterly metrics are starting to show signs of stability and, in some cases, modest improvements as we continue to work our way through the external market dynamics. And now with that, I would like to turn the call back over to Will.
spk04: Will? Great, operator. Let's go to Q&A.
spk10: Thank you. Ladies and gentlemen, we will now begin the question and answer session.
spk02: Should you have a question, please press the star followed by the 1 on your telephone keypad. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. And should you wish to cancel your request, please press the star followed by the 2.
spk10: One moment, please, for your first question. Your first question comes from the line of Ryan Daniels from William Bear. Please go ahead.
spk09: for taking the questions and for the update. Will, can you go into a little bit more detail regarding the guidance reduction? Specifically, if we look at the three areas you highlighted, which are medical legal reviews, pushing business out, which is a timing issue, macro headwinds, and then the non-core business weakness. How did each of those contribute to the lower outlook?
spk00: Yeah, thanks, Ryan. Good to hear your voice. Yeah, I would say it's about a third, a third, a third spread out pretty evenly. On the medical legal review, obviously, it's not new to the space. Like I said, frustrating and impactful, but it's just part of the current dynamic. Relative to the other pieces, I would say they represent about a third as well inside of the the adjustment. On non-core, we had some, you know, non-core when you think about access and patient engagement. We just had some disruption there, and it's an evolving space. It's also less than 10% of our revenue, so not as impactful. But you put the three together, and you've got yourself this slight type 1 miss. but teams focused on it. The clients are there, and luckily that base is pretty solid. So I think we can bring some of it back, but not enough. And in this market, we want to be conservative.
spk09: Okay. And then what are kind of the biggest variables now for the remainder of the year? We're sitting here in less than four months left, and you still have a pretty broad range if we think of the new range you provided tonight. So what are some of the things that would need to hit or miss to get you towards the upper and lower end of that range you provided?
spk00: You know, I think there's two things, and I'll let Ed or Steve comment as well. The two things that come to my mind are, you know, just swifter decision-making. We think that the noise is dying down. It still exists, but it's dying down and we're given our focus and some of the recent attention to AI as a piece of a strategy to reach physicians and patients. We're really well positioned for that. We also believe we've got a nice connection into the agency world, which obviously manages a lot of the media dollars and have continued expanding landing pads to capture some of those dollars. Ed and Steve, anything else you want to add to that?
spk05: Yeah, Ryan, just a couple of things to mention. So kind of the bookend right now for the range as far as commitments signed and ready to go. We're between 80% and 90% in the bank. So we basically have between 10% and 20% of our total revenue for the year that is still outstanding. So we feel we've got enough line of sight for current opportunities in the pipeline as well as expected RFP season. to fill that gap.
spk09: Okay, and then last one, I'll hop in the queue. When you talk about the 10% reduction in the operating expenses, obviously good operating expense control this quarter to have, you know, in line, bottom line, despite the revenue mix. But what is that? Is that going to be a workforce restructuring? Is it just keeping expenses in check despite the fact that you'll start growing again? Is it kind of a refocus on go-to-market efforts with specific products? Just a little bit more color there on what's going to be driving that. Thanks.
spk00: Yeah, Ryan. So obviously this is a people business, and we love our entire team, and that comes first. So we're not going to rush into any decisions. We're fiscally very strong and have always been very responsible with that part of the business. But we're really going to hone in and focus on what's working well And if something is not, then we'll sunset it. We'll look to move past it. And so I think there's a combination of we're just going to hold off on hiring, right? We're going to have some attrition. And we're going to shift the focus into the sort of core business that built this up today. I think if you add all those things up, you get there. But again, I want to emphasize we're not in a rush to do that. And, you know, we will take a very, very good approach to handling it.
spk03: Thank you. Thanks, Ryan.
spk02: And your next question comes from the line of Sean Dutch from RBC Capital Markets. Please go ahead.
spk01: Yep, thanks. Will, you mentioned UL1, another three RWD deals, which I think brings the total to nine now. The three new ones, is there any more detail you can give us on what those entail? How similar, dissimilar are they to the first six you've signed? Maybe some sense of how big they could be and when they should start to ramp? Sure. I'm going to ask Steve Sylvester to answer that one.
spk04: Thanks, Steve.
spk08: Yep, happy to. Hey, Sean, good to hear from you. So, yeah, we are up to nine deals, which is, I think, a pretty good accomplishment. We're, as you heard Will say earlier in the call, we're far ahead of anyone that would be trying to compete in this space in terms of bringing something to market that actually is executing. The deals are pretty consistent in terms of composition. They all follow a very similar sort of setup, structure, execution function. And size-wise, they're all sort of similar as well. I think one of the things that's noteworthy that I would probably call out here is in several of the manufacturers where we did the early work last year and sort of generated ROIs, we've expanded to other assets within those same manufacturers, meaning we're supporting other disease states for those same manufacturers based on the good work and performance that the team did with the prior efforts. And I think, Sean, that gives you kind of an idea of future opportunities. You've heard us talk a lot about cross-sell, up-sell. in the last, I would say, 12 to 18 months for our RWD AI solution, which was extremely novel to the market. It took a little bit for pharma to be able to understand it, to get it through MLR, as you've heard Will and Ed already talk about. But now that it's through, we're now starting to see a more rapid adoption, and it's pretty exciting.
spk01: Okay, great. And then the RWD AI deals that are active now – Are any of those approaching any type of renewal? I guess is the expectation still that these things can renew pretty quickly relative to what has been the case in the past? And then how are you handling that or handicapping that when it comes to the guidance? Is there some assumption that some of these existing active ones renew within the year, or are you just assuming they just kind of run out and don't?
spk04: Yeah, I could tell.
spk00: Go ahead, Steve. Yeah, great. Thank you.
spk08: You know, what we've seen, Sean, is that of all the solutions we have, these are the most sticky. And the reason why they are is because you're basically creating an audience, meaning identifying a patient profile. There's work that goes into that build. And when those execution functions perform, it's very easy for the manufacturer to just carry on. So our view on the renewals is very optimistic. It's fashioned into our current thinking on guidance. As you've heard both Will and Ed say, we've been conservative with that guidance. I think that covers also what we're looking at on the RWDAI front. But we have every reason to be very optimistic with this specific line of our business and are pretty positive about it. Okay.
spk04: All right. Great. Thanks again for taking the question. Thanks, Sean.
spk02: Thanks.
spk04: Thanks, Steve.
spk02: Thank you. Once again, should you have a question, please press star, then the number one on your telephone keypad. And your next question comes from the line of Eric Mertonici from Lake Street. Please go ahead.
spk06: Yeah, I wanted to focus on the guidance here. At the mid-50s to low-60s, I'm coming up with roughly a 58.5 million for the year, which would be down about 10 million versus your your prior guidance, and, you know, given the 27 million that we've done in the front half of the year, it's looking like, you know, that we get to kind of a, I don't know, 31, 32 million across the back half of the year. How should we be thinking about the weighting of that 31, 32 million across Q3 and Q4? Will we see traditional seasonality where Q4 is a big step up, or is it just more prudent to model it flat across the two quarters?
spk00: Yeah, do you want to take that one?
spk04: Yeah, sure.
spk05: Yeah, Eric, how are you? Yeah, I would say user change is now used in the past, nothing different. We are being conservative. As I said before, you know, 80% to 90% is the range right now for us as far as commitments are concerned. So our plan, of course, is to hit at least and hopefully exceed guidance to send.
spk06: Okay. And then I thought I understood what non-core was, and now I'm not so sure. Will you refer to it as less than 10%? So, I mean, if we just take Q3 in round number, or sorry, Q2 in round numbers, You know, if the street was looking for 14.8 and you guys delivered 13.8, you know, let's start with that 13.8. You're saying that non-core is less than a million four of that 13.8?
spk04: Yes. Okay.
spk00: I mean, we don't break things out, but just non-core did contribute to the miss. as well as the MLR that we referenced.
spk06: Okay. And then I saw a percent on the RWDAI. Have you given an actual revenue number on the RWDAI?
spk00: We have not broken that out yet, but as we fine-tune this model to really be driven by that as our key differentiator value proposition, we'll get closer to that. You know, it's going to be a combination of AI and enterprise. That's what's the stickiest. It's the best margin. It's actually the most valuable client, the doctor and the patient. So you'll see as we get through the next two quarters, we'll fine tune that more and more because that's, you know, at the end of the day, obviously, we've all read about AI endlessly. When you actually try to apply it in health care, it's very tricky. But when you're working with these data sets that we are and your platform is connected the way we are, it's actually the perfect application for machine learning to help our clients find and get patients on the medications they need. So, yeah, we're going to get more and more focused on that. As I referenced the three years in, because I do not want the market to think we're just being opportunistic here. This is something we've been working on for, as I said, a couple of years. We've got a team that's now really good at working with the clients and our partners and data providers. So that's a really unique skill set that's all tech-enabled. So we're very excited about it, but we'll get more specific about that, Eric, over the next couple of quarters.
spk04: Got it. Thanks for taking my questions. Thanks, Eric.
spk02: Thank you. And your next question comes from the line of Neil Chatterjee. From BRLE Securities, please go ahead.
spk07: Hi, this is William for Neil today. Thanks for taking our questions. I'm just kind of curious if you could provide any additional color on the expected cadence of these RW deals throughout 2023 and how things sort of shaped up in 2Q and then, you know, for the how we should expect for a second half.
spk00: I'll start and then I'll hand it over to Steve. We're in that part of the year where RFP season is kicking in, a lot of strategic discussions with clients around 24. So we wouldn't anticipate a lot of big RWEI closings between now and the end of the year, but a lot of planning going on. And that part has been very encouraging. But I'll let Steve talk specific because he's in the trench day to day.
spk08: Yeah. Hey, William, thanks for the question. Yeah, exactly what Will said. We're in the midst of the RFP season right now, and most of the conversations that we're having are larger strategic conversations where they are crossing franchises in the manufacturer. I think that's an incredibly positive sign where we're having discussions now of not just can you support this drug for three to six months or 12 months. It's can you support the entire portfolio of immunology? Can you support the entire portfolio of oncology and so forth? and those are good places to be. I think also one of the other pieces that feels like pretty good tailwind in terms of RWDAI is in most cases where we've done and implemented a program and a solution, we've gotten strong C-level support within the manufacturers based on the results. It's really good when you have C-level executives evangelizing the solutions to other parts of the organization, and so We fully anticipate a successful second half in terms of getting things up and running and then programs deploying in the first part of 2024 that will set us up for a really good year next year. Got it.
spk07: Appreciate that extra color there. One last or one additional one. You mentioned originally that you had basically 30-30-30 on what drove sort of the weakness during the second quarter. In terms of macro headwinds impacting the second quarter, do we expect the same level of macro headwinds to continue into the second half, and do we have any new strategies that we might be expecting to mitigate those headwinds?
spk00: Yeah, I think, look, you'd still see an FDA behind 21 approvals That's still a real headwind. That's for everybody in the industry that's focused on specialty medications and marketing dollars. While we're not seeing people jump to other companies, if you just pay attention to LinkedIn, you're also seeing these companies not growing in terms of people. If anything, they may be doing the opposite at the manufacturer level. So there's still disruption there. But And then, obviously, the headwinds of just noise in the market that we've talked about. But I think the noise is going to start to subside through RFP season. I think the way we are addressing this issue is really to double down on what's working and what's stickier and really is the most exciting part of the business where the growth is. And I think just by doing that, by simplifying the entire team focused on that, we'll see an uptick in productivity across the board. So... Stay tuned on that. We're pretty excited about it, and we're very focused.
spk04: Got it.
spk07: Appreciate you taking my questions, and I'll jump back in the queue. Thanks.
spk04: Thank you.
spk10: Thank you. Once again, should you have a question, please press star, then the number one on your telephone keypad.
spk03: As we have no further questions at this time,
spk02: I will now turn the call over to Mr. Fabo for closing comments. Thank you.
spk00: Thank you, operator. Thank you, everyone, for joining us on the call today. As we work through these near-term disruptions, we remain active in addressing pharma's digital needs. With the current pharma digital TAM spanned at greater than $10 billion and continuing to grow, we are working towards fortifying our position as the most complete AI-powered digital point-of-care engagement partner for pharma in the marketplace. We hope that the trends that have disrupted our historical growth will subside over the next coming quarters. Lastly, we are being very proactive in our efforts to reverse current results due to headwinds and return our business to its historical growth trajectory. We are greatly aware of the responsibilities with which we have been entrusted to shoulder by our shareholders. To this end, we are aggressively hunting for accretive assets in addition to strategic Alternatives, so long as the value proposition to our stakeholders makes the decision an obvious one. Nothing to announce today, but we are very active in the market. We also plan to have additional communication with investors prior to our third quarter earnings call. With that, I'd like to say thanks, and I look forward to talking to you soon.
spk04: Bye-bye.
spk02: 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 with 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. To word 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, including statements regarding estimation of total addressable market size, market penetration, revenue growth, gross margin, operating expenses, profitability, cash flow, technology, investments, growth opportunities, acquisition, 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 are certainties, some of which cannot be predicted or quantified. 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. Risk 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's 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.
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