OptimizeRx Corp Q1 FY2025 earnings call

Steve Silvestro noted Q1 2025 revenues were ahead of estimates, with momentum from Q4 continuing. Contracted revenue increased over 20% year-over-year. The company is increasing guidance for 2025, with revenue expected between $101 million and $106 million and adjusted EBITDA between $13 million and $15 million. There's early momentum in the transition to a subscription-based model with over 5% of projected annual revenue converted. Ed Stelmakh discussed financial details: Q1 2025 revenue was $21.9 million, up from $19.7 million in Q1 2024. Gross margin decreased to 60.9% from 62% in Q1 2024. Operating expenses decreased $1.8 million year-over-year. Committed contracted revenue exceeded $70 million, a greater than 25% improvement over the same period last year.

In First Quarter Fiscal 2025, OptimizeRx's revenue was $21.9 million, a 11% year-over-year increase. Adjusted EBITDA was $1.5 million. Contracted revenue increased over 20% year-over-year. Top 20 pharmaceutical manufacturers represented 63% of Q1 2025 business, with average revenue per top 20 at approximately $3 million. Net revenue retention rate was a strong 114%, and revenue per FTE came in at $710,000, up from $641,000 in Q1 2024.

OptimizeRx is increasing its guidance for 2025, expecting revenue to come in between $101 million and $106 million, and adjusted EBITDA between $13 million and $15 million. There is early momentum in the transition to a subscription-based model with over 5% of projected annual revenue already converted to subscription contracts for 2025.

Risks include the effects of government regulation, competition, dependence on a concentrated group of customers, cybersecurity incidents that could disrupt operations, the ability to keep pace with growing and evolving technology, and the ability to maintain contracts with electronic prescription platforms and electronic health records networks.

Q: Guys, did you hear the question?

A: No, we couldn't hear the question. Sorry.

Q: Thanks for taking the question and congrats on the strong performance. And I hate to ask this, because you've increased your guidance and said you're not seeing anything, but - by far, the biggest question we keep getting, is just all the noise in the end market with tariffs and with price negotiations, et cetera. I'm curious how real-time your feedback is from your sales team. And number two, if you've seen any hesitation in any of your customers, or if they're just not, at this point, making any changes because it's so uncertain in the marketplace today?

A: Thanks for the question. We've not seen really any pullback from our clients. We are getting real-time information and updates, as we're kind of daily dealing with them. What we have seen really is just a leaning in, and trying to drive a little bit harder at these markets. Jury is still out on how things will be impactful going forward into the future and how things will be rolled out. But right now, no indication of any sort of pullback in the business at all. We actually see the opposite, people leaning in trying to leverage digital channels, a little bit more than before. And I think that - the other thing to look for is just, I would say, the cost effectiveness of digital versus some of the other channels that they use to promote. And if they get in a cost-cutting sort of state, we'll probably see some of the other things ratchet back faster than digital. You may see even more acceleration in our favor, if they go down that road. But yes, to date, nothing really to panic about.

Q: Can you remind us when you move to subscription-based revenue upon removal, how does that, impact kind of the revenue recognition over a 12-month period in the margins. Does that - just I'll leave it there, how does it really impact margins in rev rec, if we think about the total revenue?

A: Hi, Ryan. Yes. Basically, it's relatively simple. It kind of spreads your revenue over the 12-month period. It takes the dollars associated with subscription-related solutions, and services and spread is over the course of the year. It's actually accretive to us, because of the revenue share perspective. We kind of keep most of that revenue to ourselves, and the cost of sales for their revenue is pretty low.

Q: You mentioned, I think, the direct-to-consumer managed services kind of mix diluting gross margins a little bit. How should we think about the gross margin profile of the company going forward? Is that kind of low 60% range still the right target? Or might you see more growth there that pushes it slightly below that?

A: Yes, we're certainly working on trying to increase that above the low 60% mark. But right now, our kind of makeup of our portfolio, is such that when we do have some solutions that, are a little bit lower on the margin side, you will see that sort of a dilution. The good news is we're diversified enough where none of our solutions really, will have an impact that material at this point. So we feel pretty comfortable with the current range.

Q: In your prepared remarks, you said that - or maybe it was add that you had $70 million in committed revenue. And I assume you're speaking to visibility on the year, and that was up 25%. So just back of the envelope math, does that suggest that you've got a little over - about 70% visibility today at this point in the year versus 60% last year? Did I get that right?

A: Yes. Yes, you're in the ballpark. It's north of 80% where we currently sit. That's what's in the prepared remarks. And you're in the ballpark, David.

Q: In terms of the amount, or how much more revenue we can convert to subscription kind of just think about it over the balance of the year. How should we think of how that 5% may migrate?

A: Yes. And basically, if this works out the way you're planning and the way we hope, the subscription revenue will convert into next year, and we'll have some legs in the following several years. So versus what we had in the past, where most of our revenue was one year in tenure or less. Hopefully, subscription will have a little bit more of a life cycle to it. We're hoping current percentage will continue to grow and expand, and it will smooth out our revenue recognition over time.

Q: Can you just remind us how - what percentage of revenue is represented by the data business?

A: We don't break it out that way. We were breaking out sort of a DAAP and core stuff for a bit, but we can circle back and give you a little bit better view. We haven't broken it out to date that way.

Q: I know it's a modest kind of decline. But anything to call out on, what may be impacting the NRR sequentially?

A: Yes, I can take that question. So that - we talked about this on the last call. So it's a trailing 12-month look. So now we're running into trailing 12-month comps year-over-year that have the benefit of Medicx acquisition. And so, as you go more into time, there's just more Medicx revenue on the year-over-year comps. So it becomes less favorable of a year-over-year comp on NRR.

Q: In terms of new business, can you talk about sort of how RFP season played out on the DTC side, and how you view sort of new wins on that side of the table? And then I think you gave the number last quarter of paying DAAP deals was 48 versus 24 starting the year. I'm not sure if you're willing to update that number, or just talk generically about new wins on the DAAP side?

A: Yes. I can take the DAAP question. So we're - just given it's such a large percent of our business right now, for competitive purposes, we're no longer breaking out like how many deals, were getting or anything like that. That was just really to show initial adoption. And then, I mean, Steve can give a little bit more detail on the DTC side of the business, but both parts of the business have been performing well this year, and are contributing to our increased guidance.

Q: When we look at Q2, now we're about halfway through now, should we expect typical seasonality Q1 to Q2 pretty much flat? Or are you seeing demand here more outsized demand here in Q2, and we should expect sequential growth. I know you guys didn't give quarterly guidance, but maybe directionally, you can help?

A: Yes, we would expect a small step-up sequentially. First half of the year revenue is typically between 35% and 45% of full year revenue. I think, we're in a pretty good pace, compared to historicals.

Q: I just wanted to maybe drill into the pipeline a little bit more, and kind of what you're seeing there. Is it bigger on an absolute basis year-over-year? Maybe talk a little bit about your win rates changing relative to what they were last year? And then maybe just some commentary on average deal size, and if you're having any success with double-barrel sales. I know I just threw a lot at you, but just kind of curious if we can get a little more color on kind of what's in the pipe?

A: Hi, Constantine, good to hear from you. I'll give the first couple of answers and then ask Andy to chime in. But basically, pipeline continues to grow at a steady rate. I think we feel confident with where it is. We continue to convert, I think, at a good pace, but our conversion ratio has become better. We're finding that we're winning, particularly with the data and subscriptive component of our business. We're winning more as our audience quality has improved, and our data has been better. So that's been helpful and we've seen those pieces of the business go.

Q: Are those - are the subscription deals multiyear? Are they just sort of one-year evergreen arrangements?

A: Right now, they're one-year evergreen arrangements. The goal would be to get them to multiyear status, but that's kind of difficult to do, Constantine, in this space, because marketing basically ascribes dollars on a yearly and an annual basis based on previous year's full year performance. So it's going to be difficult to do three-year, four-year, five-year deals. So for right now, we're looking at 12 months, and scaling as many of those as we can. As time progresses, if we can get that data component of the business to two and three-year deals, that will be an enormous win for the business.

Q: On the guidance, should we assume that the high end of revenue correlates with the high end of EBITDA? Or does it sort of - is there some dynamic here, where you're investing more to get to the top end?

A: Yes. So it's less about investing more to get to the top end. We feel pretty confident that with the backlog build up, and some of the tailwinds we're experiencing now that, we will get to that number. Really, the hedge there is around gross margin. The mix of solutions is one thing that is not appreciable. So we're probably betting on a little bit of a more considerable number on the gross margin side of the business, with OpEx more or less been kind of set for the year.

Q: Wanted to follow-up on the visibility topic and the roughly remaining 20% of revenue that, you need to land for the year. Could you discuss what needs to be landed in terms of renewals, or upsells or adding new logos?

A: As Ed said, we've got greater than 80% contracted revenue on the backlog for the full year. So that gives us good visibility into where we're headed. Basically for what we need to do for that component, the delta is really just delivery over time, which will happen organically as we prosecute these programs. The delta between what we've contracted and where we need to go is sort of the difference between the guidance, and the visibility that we've got, and are at the top end of that guidance and the visibility that we've got. And so what needs to happen there is just conversion of the pipeline very simple. And the pipeline, like we - like I responded to Constantine is very healthy right now. So I think we're feeling confident in that.

Q: Maybe back to the topic of gross margins and the mix involved there. I was hoping you could help us understand a little bit further the progress you've made on conversion, to data subscriptions and the benefits there and the comment about the gross margin percentage in the quarter, being down a little bit year-over-year from an increase in managed services. So maybe it's really around the appetite for customers, to kind of rebound demand for that managed service offering versus it going one way towards data subscriptions?

A: Look, I mean we have a portfolio now that's diversified now that was built around meeting and exceeding customer needs. In some cases, we'll need to take some business that is lower margin. But really, the focus for us as a company, is to continue to build out the higher-margin side of the business. And that's exactly what's happening. Our current gross margin profile is right there where it needs to be. And we feel like as the year goes on, we should see more and more of the expansion take place. And certainly, as part of the Rule of 40 kind of ramp-up, margin expansion is part of the equation.