Optimizerx's (OPRX) CEO William Febbo on Q2 2015 Results - Earnings Call Transcript

| About: OptimizeRx Corp. (OPRX)

OptimizeRx Corp. (OTCQB:OPRX) Q2 2016 Earnings Conference Call August 8, 2016 4:30 PM ET

Executives

William Febbo - CEO

Doug Baker - CFO

Analysts

Harvey Poppel - Poptech LP

Operator

Good afternoon and thank you for joining us today to discuss Optimizerx's Second Quarter ended June 30, 2016. With us today are the company's Chief Executive Officer, William Febbo; and Chief Financial Officer, Doug Baker. Following their remarks, we will open the call to your questions. Before we begin, I would like to provide the company's Safe Harbor statements.

Statements made by management during today's call may contain forward-looking statements within the definition of Section 27A of 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 an investment decision. The words estimate, possible, and seeking are similar expressions identifying forward-looking statements and they speak only to the date the statement was made. 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 the forward-looking statements. The risks and uncertainties to which forward-looking statements are subject and could affect our business and financial results are included in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015. This form is available on the company's website and on the SEC website at sec.gov.

I would like to remind everyone that today's call is being recorded and it will be available for replay through August 29, starting later this evening. Please see today's press release for replay instructions.

Now with that, I would like to turn the call over to the Chief Financial Officer of Optimizerx, Mr. Doug Baker. Sir, please proceed.

Doug Baker

Thank you, Rufus. I'd like thank you everyone for joining us on today's call to discuss our results for the second quarter of 2016. Following my financial review, Will is going to comment on our operational performance and provide our outlook for 2016.

Now turning to our financial results for the quarter, our net revenue in the second quarter of 2016 increased to 12% to $1.9 million versus $1.7 million in the same year ago quarter. The increase was due to both increased promotional of pharmaceutical brands and expanded distribution channels. Our revenue for the first six months of 2016 was $3.67 million, up 15% from the same period last year.

Our gross margin increased to 48.3% in the second quarter -- increased from 48.3% the second quarter of 2015 to 51.8% in the second quarter of 2016. For the first six months of 2016 our gross margin was 50.6%, up from 48.6% in the same year ago period. The gross margin improvement in both periods is related to a shift in product mix towards products that were not subject to revenue sharing.

Operating expenses in the second quarter of 2016 were $1.6 million as compared to $1 million in the same year ago quarter. The increase was primarily due to an increase in expenses related to growth initiatives including investments in our executive and sales team related marketing and travel. As of June 30, we had a total of 22 employees, up from 16 at December 31, 2015 but in line with our budget number of employees.

Since the comparable quarter of 2015, we've hired several key executives, including a Vice President of Client Services, a Senior Vice President of Business Development, a Senior Vice President of Product & Strategy, and additional Vice President of Sales, a new Vice President of Channel, and of course, Will our new CEO.

Our operating expenses including the one-time lawsuit settlement expense of $160,000 as a result of a lawsuit that we settled in the second quarter related to the separation agreement of a former CEO that resigned for personal reasons in 2013. Only $50,000 of that was cash which is a considerable savings as to a scene the case to court. Our net loss was $592,000 or $0.02 per share as compared to a net loss of $157,000 or $0.01 per share in the same year ago quarter.

Turning to the balance sheet, our cash and cash equivalents total $7.6 million at June 30, 2016 as opposed to $7.5 million at March 31, 2016. We continue to operate debt free.

Now with that, I'd like to turn the call over to Will.

William Febbo

Thanks, Doug. And thanks everyone for joining us today. It's good to be here again, five and a half months into the position as CEO, I remained very positive on the opportunity we have with all our clients, our channel partners, investors and the team.

I'd like to begin with giving our listener some contacts on the total available market we have in front of us. There are approximately 650 retail pharma brands with traditional coupon programs. Our current average coupon program is about $125,000. With an ASP like this it was established prior to our strategic investment by WPP as you all know, a strong partner and one of the world's largest media companies. And prior to the plan of offering new products and services of our existing client base and brands to enhance our position in the market. Given these brands in the ASP potentially reaching 300,000 it is clear we have a major growth opportunity in front of us.

In our favor are many things; first mover advantage, limited competition, very hard -- very high barrier to entry given the fragmented nature of EHR space, our strong balance sheet and critical to every business, a great team. Here are some statistics that support why our Company is in the right place at the right time. 20% of all sales reps actually speak to a doctor, over a $1 billion are wasted on infeasible doctor cost, meaning the rep never gets to the doctor. Doctor spends over 3.3 hours a day at the computer at the EHR where our point of distribution is. 80% of physicians in the market using EHR and 85% of physicians are actually E-prescribing.

On our last quarterly call, I talked about four key priorities we are pursuing in 2016 and beyond. I want to give you an update on those. The first is to introduce new products and services to our existing client base, grow from within. And particularly, we could -- we plan to expand our suite of services from the financial messaging known as E-coupons, to include clinical messaging and brand support. We will continue to invest and grow financial messaging as the lead product as it has the most momentum and is one of the top three products healthcare providers want to deliver to patients at point-of-care once they've made their prescription decision.

We will also grow clinical messaging by leveraging our exposure through media companies owned by WPP and in the marketplace. In fact, our partnership with WPP is beginning to gain traction and I'm glad to report 15 new brands for financial messaging, and 12 new brands for clinical messaging will be launched in Q3 which equate to approximately $600,000 in revenue. Very happy about this, and put a lot effort on that.

Inside of Q2, WPP also completed its acquisition of CMI, one of the larger media buyers for pharmaceutical companies. We are actively training their internal team, so we can work hand-in-hand with their brands. This is relevant because media companies control the budgets often, and advised on those budgets for pharmaceutical brand managers and particularly on the clinical messaging side where we hope to get a lot of growth.

Additionally, we've pulled together what have been relatively desperate services, we call it before drug file integration, sales force training, and return on investment services into the new practice called brand support. In 2015 that was approximately $0.5 million in revenue to give you some context. Does this service -- through the service we help our pharma clients audit their formal area within EHR ecosphere which is the key to adoption and/or prescription of any given drug. Our brand support business is generated over 800,000 to-date, so I believe this will become a significant part of our grow story, as well as a solid switching cost or barrier to entry within the market. I'm very encouraged by the results to-date.

We also initiated a rebranding of our company during the quarter to demonstrate our ability to provide financial and clinical messaging, as well as print support services. The entire rollout of new marketing, messaging in materials will be completed in Q3 and tighten nicely into the budget planning cycle our clients have for 2017. These tools will allow for more up sell opportunities to existing clients, and show potential clients that we are evolving from one product to multiple services, in and around point of care. Stay tuned for this in early September. I'm very excited about the work we're seeing.

The second key priority while more operational is rounding out our leadership team as Doug mentioned; the sales team as well and also the marketing plan, we're trying to drive added to show our leadership to our clients in our channel partners. During the quarter we appointed Brian Dylan to the new position of senior vice president product and strategy to lead the expansion of our product lines. As many of you have seen and I've talked to from the press release and his bio, Brian brings considerable value to our senior team. I've seen tangible results with channel partners reconsidering a direct relationship, agencies becoming more a trusted partner and our technology improvements have someone who can go deep on the necessary work flow, to maximize the experience for all parties and drive revenue.

Also during the quarter we added two new team members to support our direct client outreach and channel partner management. In particular, we added an additional VP of channel to service our channel partners, as well as added integration specialist to onboard additional channel partners. We believe these additional team members will drive growth with our existing solutions, as well as handle new products and services that we plan to launch before the end of 2016.

The third priority is to handle proprietary technology to improve margin as Doug reference before we're starting to see traction there already by 3% or 4% and get beyond the perception of a one product company. We have the beginnings of a strong channel with our partners, we now need to bring services technology and innovation which are acceptable to our partners, and their clients.

Lastly we'll bring focus and investment in securing additional distribution points for our existing client base. I have now met with all our existing channel partners, and the gentle team is very link -- has a very encouraging pipeline of new partners. We plan to work closely with our ERX partners to get better reach into the HCPs. There are companies that -- Sorry these are companies that bring E-prescription platforms into the EHRs like Doctor First one of our key partners. This market is very dynamic, and we continue to believe this is a channel which required leadership around how to deliver content to medical professionals and patients, which you're in line with all guidelines. We want to be that leader.

During the quarter we announced our first partnership in the independent pharmacies space with RxWiki a rapidly growing digital healthcare company with a network of 1,300 community pharmacies. This strategic partnership is a natural extension of our business into a pharmacy and adds additional distribution points for our financial messaging or E-coupons. We are beginning to see initial revenue generated from partnerships such as TrialCard and RxWiki. And we will pursue those very strongly through the remainder of the year.

As we talked about the last call turning to our key partnership with ALLscripts the integration of our E-coupon functionality within their touch works EHR platform is on track I'm glad to say to launch in late 2016, and then on a wider scale and Q1 2017. As a reminder this is approximately 50,000 additional HCPs, where we have an exclusive relationship for financial messaging with ALLscripts, a terrific partner of ours.

In summary our momentum continues in acquiring, integrating and expanding into new promotional HER-ERX Platforms. We are actively engaged in discussions with several EHR's to integrate our technology into their platforms. We're also working extensively with our EHR partners to expand the reach of our messaging products to all of their healthcare providers, as well as to increase the utilization of the financial messaging functionality by their existing users. With the growth of both our pharmaceutical products and our distribution network, we expect our distribution of messaging will continue to increase year-over-year. We plan to launch a proprietary messaging technology in the current quarter Q3 with the revenue impact in Q4 as well as in 2017 and beyond.

Now with that I'd like to open up the call to questions.

Question-and-Answer Session

Operator

[Operator instructions] And for our first question we go to Neil Fegans [ph].

Unidentified Analyst

Hey guys, thanks for taking my call. Look, it's very exciting to hear the traction that we're making with WPP. I think a lot of us understand how the coupon program works. I wonder if you could use the 12 new brands that we signed for clinical messaging. Could you use those and maybe give us an example of the type of message. How long a messaging program would run? What kind of revenue mechanism are we operating under -- in other word, how do we pay and who's funding the payment to us? Help us understand a little more about how all that is going to work as we start to make that a bigger part of the revenue stream.

William Febbo

Absolutely Neil, good question. I can't speak specifically to a brand or manufacturer because they're very sensitive about that but In essence we have -- We are paid by pharma so is a manufacturing sponsoring a message and the message would also be embedded into the workflow similar to the e coupon which comes up once a brand is typed by the physician. This is real estate to the right within the work flow that would have a clinical message, which sometimes is branded similar to a banner ad and other times its very plain text which leads to a pop up window. We are paid by clicks that's all tracked the same way we would track a distribution of e-coupons. So very similar business, the buyer is the same, the intention is the same it's to increase awareness of clinical advantage.

And the importance is becoming more and more focused for pharmaceutical companies because of this new channel at point of Care. Traditionally this would have been a media spend in internet based services print media, you know typical media budgets. And this is a relatively new space, so it's growing quickly, it's one of those few spaces where pharmaceutical can set back and really understand that it's getting to the HCP. And they love that it's in the work flow at point of care.

Unidentified Analyst

What is a typical pay per click to us? Is it pennies per click or is it dimes per click and how do we think about that?

Doug Baker

So we don't disclose the per-click but it's basically yes similar budget sizes they generally want to if their first time first time users they will run over a $50 to $100,000 program. And that's usually a six month window to be able to allocate that sometimes that happens more quickly, other times it does take the full six months depending on the therapeutic area. But it's a very similar in nature around the budget sizes and the key aspect that I mentioned earlier in the presentation around CMI which is one of the new companies owned by WPP, that they're really one of the major media companies in health, so we are we are very excited to see that and my hat's off to the Jerry Hamilton our SVP of sales is really done a terrific job with that relationship.

Unidentified Analyst

Okay. And more real quick questions on this topic and I get back in the queue, you said we have about $600,000 of revenue potential from the wins with WPP the 15 new drug brands and the 12 new messaging opportunities. Is that $600,000 per quarter?

Doug Baker

I have to be a little careful on guidance with revenue.

Unidentified Analyst

You gave us the number right there just wasn't and because I took -- I took 15 new brands times 125,000 average per brand on the coupon side. And you know I came up with $1.8 million a year just from the brand so I'm just wondering where it went ahead of -- what is the $600,000 come in.

Doug Baker

I think if you use your formula you can determine what an annual run rate would be. So it -- that's material revenue per this year that I mentioned.

Unidentified Analyst

For this year, okay and I'll get back in that in the queue, thank you.

William Febbo

Neil thanks, appreciate all your support.

Operator

[Operator Instructions] For our next question will go to Harvey Poppel with Poptech LP.

Harvey Poppel

Yes so Will, like congratulations continuing on your initial. Sounds like a lot of good great progress here.

William Febbo

Thanks Harvey, good to hear a voice.

Harvey Poppel

Yes. Just to pick up on this a clinical messaging for a moment that your -- and brand support both. I just trying to get a better idea of the economic model, I know you don't want to do it disclose the click pricing but can you -- are you doing about the same level of revenue share with each of these were there's a revenue share percentage of gross margin change from 50%, 51%, 52% that you are hitting right now?

William Febbo

We have a slightly better margin on messaging mainly because of there is no royalty associated with that we've about a 10% better margin on messaging. And that material in our business as we scale, relative to our channel partners and we have two levels to messaging, prior to meeting the joining the firm we basically used other people's messaging technology so we have a smaller revenue share. We have built our own now and we're in the process of embedding that into certain partners and that would be a 50-50 revenue share, traditional to -- similar to e-coupon.

Harvey Poppel

What about brand support and you talked about that includes a variety of different activities but there is other consulting type of a business basically.

William Febbo

Yes, it's very tactical I always get a little nervous with the word consulting because there certainly firms out there that consults and put strategy. We just given the network we have into the EHR. And a very tactical nature of making sure formularies correctly place. And we tend to it -- we've repositioned it so that brand support is really hitting most of our clients pre-launch. Because once they're launched generally these things are cleaned up pretty quickly, so it is consultative in nature but it's very tactical it is done by the team in Michigan and it is priced on a project basis, but generally 6 and 12 month period. And if you look at the launch is coming up, the reason why I'm excited about this business is you can see the number of grants that are going to be launched, you can be pro-active in selling this service and it's almost like an insurance audit service, and I think and. The industry continues to adopt that EHR as a point of care channel for marketing, like everything they're going to want assurances that it's accurate.

And so I think we're going to have nice growth here it also creates a bit of a switching cost because you get to know the brand manager a little deeper, you get to know the networking how their formularies sits within it. So it's all good more touch points with the client, it is the same client so we're not going to different groups, and it's often included in our statements of work now just as the default and then they can choose to keep it or not.

Harvey Poppel

Does the conversion rate from brand support to financial messaging is at historically been pretty high?

William Febbo

What's nice is they go together pretty well and right now we consider them one but the some of the up selling we've seen over the last few months has come from someone we already have the e-coupon for that we maybe didn't have the brand support. So it's often that the financial messaging will drive it. And because it's often a lot less even though it's a very high margin because we don't share any of that revenue. That is 100% minus our cost to people. It's a nice product I have in the mix in terms of contribution.

Harvey Poppel

Okay. Also by the numbers you gave earlier about brand support going from a $0.5 million in all of 2015 to $800,000 or so a year-to-date were through the first half. By subtracting that out of the total revenue would imply that your financial messaging business really is growing only in the single digits.

Doug Baker

Yes we did see it slow down and lately -- and I think that was partially a little bit of a hangover from the year before, where we had some distractions around raising money and hadn't built up the sales team yet. But I've seen the pipeline start to come back. We had some brands drop off in the early half of the year that just went generic. And I feel good about financial messaging coming back pretty strongly in the second half and continuing to grow at no way think that market is tapped out bits that up that we've got a lot -- we got a long way to go there.

Harvey Poppel

And with respect to that just same question I know you were asked the last quarter and that is the logical EHR that it dropped out last year, any signs that they're coming back.

William Febbo

Nothing definitive but someone who gets very tired of waiting and so we have with James and his team, we've started conversations so just three months ago with the other urology and oncology based EHRs and we haven't signed one yet but we have several very good conversations going on, I still think they're going to come back we just can't at the company we can't wait for them. Good news is the client -- Terry's manage the clients well they understand it's not us. And we're hopeful we can if they come back plus some of these other urology oncology focused EHRs will be in a really good position.

Harvey Poppel

Okay. Final question is, have you had any success with certain forms of generic where they are kind of those special generics they're almost branded but they're not quite?

William Febbo

Yes, this whole cash card business. So we're in the midst of finishing our third test. I think last call we talked about our second test, and we're actually pretty encouraged by what we're seeing. The trick is doing it in a way that -- finding the right partner. We think we have them, we just haven't inked that deal yet. But I would say I have some material data to share at the end of Q3. My guess is, with a pretty solid partner, and it's definitely a piece of the puzzle. You see companies like Blink who is helping people connect to generics at a lower cost. You look at GoodRx, which is good for the cash-paying people out there or just finding where drugs are cheaper.

So you've got some interesting consumer plays. The issue always comes down to the pharmacies, where you have a disconnect between just a database online and actually getting it fulfilled at a pharmacy. So we're very much paying attention to this space, not just generic but across the board and talking to all the players because we want to be the connector for industry, the manufacturers, and that is a priority for us as a product development, something Brian Dillon's working on with me.

Harvey Poppel

Great. Thank you very much, Will.

William Febbo

Thanks, Harvey. Talk to you soon.

Operator

[Operator Instructions] And with a follow-question we'll return to Neil Fegans [ph].

Unidentified Analyst

Hey, Will, I just have one more question on the clinical messaging. When we're already embedded into the technology of the EHRs like, would you say, All Scripts and Dr. First, when we're already doing the coupon programs, is it just laying a new product over the existing technology to do messaging, or does it require software development and integration with them that has a lengthy lag time. Or is it simply a matter of them wanting to expand with us?

William Febbo

Well, there's a couple ways to answer it. For people who have - for our HER partners who already have a messaging platform, they're really just looking for content, right? People like All Scripts and Dr. First. And there our -- our payout is really far less because they are really embedding -- they have the technology, we're just bringing some content. But, so, on that level, that's all we're doing today, right? And that's all we've been doing the last 18 months. On the new technology that we've built, the answer is yes, it's going to take some time. I think the companies that are most motivated to have that happen faster are the smaller EHRs with good populations of HDPs and therapeutic areas that are relevant to our client base. So we have a strategy, of course, of working with the bigger ones who often have theirs but could -- may be interested in our newer user interface, and then looking at some of the smaller EHRs that would be very motivated, just given the need for more revenue at that level. So, yes and no.

Unidentified Analyst

Okay, and then switching gears completely here, operating costs $1.6 million for the quarter. Is that a good number to use going forward or are we going to see that continue to climb with new hires and so forth that are already in the pipeline?

William Febbo

You know, I think I said early on that we're going to try to focus on top-line growth and not the bottom. I was very encouraged with the spending, that we were still cash flow positive operationally. I think that shows that I'm not just spending for the sake of spending. I have my -- I think we have the majority of our hires complete, that any ones that are remaining would be in the sales and marketing, and then account management based on growth beyond budget. So I think it is a good number, plus or minus a little bit.

Unidentified Analyst

Okay. And you gave us a good little number on generics. It sounds like we'll be hearing more about that later in the year. Is there anything you want to say about the animal med market or is that not really on the stove anymore?

William Febbo

It's definitely on the stove. It's about a $200 million market opportunity, so ignoring it just wouldn't be responsible to shareholders. And there was some momentum on it before I came. So I reorganized the team, we built a business plan around it, that's an area Dave Harold is helping with, which has been terrific, and I think there is some strategic value to having that, both human and animal health, on the financial and clinical messaging. And just to give you more context on that, the reason why I think it's so critical, aside from the revenue potential, is vets are losing business, losing their script business, their prescription business, basically. And that's about 30% of their revenue. So they're highly motivated to have something -- some service that keeps the client there to buy the prescription, and several of the larger players obviously listen to their vets because that's their client. So we're talking to the right ones, we've got a good team, but nothing tangible to report.

Unidentified Analyst

Do we need a new partner to go after that vertical? Or by chance can WTT play a role there?

William Febbo

In fact, they have. One of the team members was someone they introduced us to and he's terrific. But no, we are in good discussions with the right two or three that have the majority of the market.

Unidentified Analyst

Okay. Well, I'll just get off the line by saying it looks like you've got all the wheels turning in the right direction, it looks exciting, and don't be bashful about talking to us in between quarterly conference calls, in terms of a little bit more news flow.

William Febbo

Yes, I was hoping to have a little more prior to this earnings call; that is a priority, and the good news is when we do sign things, the people we're signing with are very open to us talking about it. On the manufacturing side, it's a little frustrating, because you just can't; they don't allow it.

Unidentified Analyst

Well, like we've talked about offline, Will, we don't really care who the customer is, or what the brand name is, it's just a generic reference to any of your customers or brands is more than enough, it's just the when and some of the metrics around it that really keep the interest level up. We don't really need to know who the manufacturer is, if you know what I mean.

William Febbo

Yes, I got it.

Unidentified Analyst

Okay, thanks.

William Febbo

I appreciate the support.

Operator

And with a follow-up question, we return to Harvey Poppel.

Harvey Poppel

Yes, just one quick one. Any progress with the litigation -- royalty litigation?

William Febbo

Nothing to report now. The company we have litigation with is now owned by a private equity firm in San Francisco and run by someone completely new. So I don't have anything to report but it's ongoing, it's something we're very -- I'm very focused on, and still remain hopeful that we'll be able to get through it.

Harvey Poppel

Okay, thank you very much.

William Febbo

Thanks, Harvey.

Operator

At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Febbo. Sir, please proceed.

William Febbo

Thank you. Hey, thanks for calling in, we see it is a good list of people calling in. The phone is always open for anyone, and I am very encouraged by the team. As I said, the market and I think we have an opportunity in front of us, and we have some nice barriers in the way of others, and I look forward to reporting back at the end of Q3 and in the meantime, hopefully, we'll close some things we can announce and get people excited about the opportunity to invest in OptimizeRx. I appreciate everyone's time today. Thank you.

Operator

I would like to remind everyone that this call will be available for replay starting later today. Please refer to today's press release for dial-in and replay instructions. A webcast replay will also be available via the company's website at www.optimizerxcorp.com. Thank you for joining us today. You may now disconnect.

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