OptimizeRx Corporation (OPRX) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for joining OptimizeRx's Second Quarter Fiscal 2026 Earnings Conference Call. With us today is Chief Executive Officer, Stephen Silvestro. He is joined by Chief Financial, Strategy Officer, Edward Stelmakh; Chief Legal and Administrative Officer, Marion Odence-Ford; and Chief Business Officer, Andy 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 discuss certain non-GAAP financial measures that I believe are useful in evaluating operating performance. A reconciliation of these non-GAAP measures can be found in today's earnings release as well as in the Investor Relations section on the company's website. I'd also like to remind everyone that today's call is being recorded and will be available for replay on the Investor Relations section of the company's website. With that, I will turn the call over to OptimizeRx's Chief Executive Officer, Stephen Silvestro. Mr. Silvestro?

Thank you, operator, and good afternoon, everyone. Thank you for joining us for our second quarter 2026 earnings call. We're pleased to report second quarter revenue of $20.5 million and adjusted EBITDA of $4.9 million, both of which exceeded consensus expectations. Our results reflect continued margin expansion, disciplined operational execution, and the resilience of our operating model despite a health care marketing environment that remains dynamic. While revenue declined year-over-year and contracted revenue remains below prior year levels, these declines remain limited to a small number of large customers, including the 1 customer we discussed last quarter that again did not generate revenue this quarter, as well as customers that have made heavier use of lower-margin managed service offerings in prior-year periods, services from which we have been transitioning away since the acquisition of Medicx in 2023. Outside the business with these limited customers and across the remainder of the business, we are encouraged by improving engagement and growth. At the same time, our continued investment in platform capabilities, including recent product launches and expanded programmatic initiatives is strengthening customer engagement and our competitive position as we move into the 2027 planning cycle. Although the timing and mix of second half revenue remains subject to some variability, our first half performance, encouraging commercial momentum and current outlook support our decision to reiterate full year 2026 revenue guidance of $95 million to $100 million and adjusted EBITDA guidance of $21 million to $25 million. Ed will provide additional details during his prepared remarks. Over the past several quarters, we've remained focused on executing against the initiatives within our control, improving profitability, strengthening our balance sheet, expanding our technology platform and creating new avenues for long-term growth. I believe our second quarter results demonstrate the progress we've made across each of these priorities. While portions of the pharmaceutical marketing landscape continue to experience some budget timing variability and cautious spending behavior, we are encouraged by the continued stabilization we're seeing across many of our largest customers. More importantly, the long-term secular trends driving our business remain firmly intact. Life science organizations continue shifting toward more measurable data-driven engagement that delivers value at the point of clinical decision-making. Health care marketers increasingly expect AI-enabled planning, authenticated health care audiences, measurable outcomes and seamless programmatic execution. These are precisely the areas in which OptimizeRx has invested for years and where we believe we maintain a meaningful competitive advantage. Our existing customers continue expanding their use of our platform across additional brands, therapeutic areas and commercial use cases. During the quarter, we saw continued adoption of our AI-enabled Dynamic Audience Activation Platform or DAAP, which increased over 30% year-over-year, while also expanding our point of prescribed capabilities across both pharmaceutical and med tech customers. These solutions are powered by OptimizeRx' proprietary foundational data asset, which continues to grow as more engagement transpires across our ecosystem. We're also continuing to make progress, expanding our footprint among midsized and emerging life science companies, which we believe represent one of the largest untapped opportunities within our commercial business. As these organizations increasingly seek enterprise-grade technology solutions without enterprise scale or infrastructure investments, we believe our platform is uniquely positioned to meet the demand by bridging the technology gap for them and leveling the playing field for them to be able to compete with top-tier companies. Just as important, we continue making progress transitioning more of our business towards recurring subscription revenue particularly within our AI-enabled software offerings, which grew 25% year-over-year. Over time, we believe this transition will further improve revenue visibility while strengthening the durability and predictability of our financial model. Taken together, these trends reinforce our confidence that the underlying fundamentals of our business remain very strong. Meanwhile, during the second quarter, we announced 3 significant product innovations that further strengthen our competitive position, while expanding our long-term opportunities at OptimizeRx. First, we announced that DeepIntent become the first health care demand side platform to integrate directly with our authenticated EHR network. This represents an important milestone in our strategy of making point-of-care media easier to access through the programmatic platforms health care marketers already rely on. As media buying continues shifting toward programmatic workflows, we're positioning OptimizeRx as the trusted infrastructure connecting premium point-of-care inventory with the industry's leading buying platforms. The implementation is now live. Second, we introduced our patent-pending natural language audience builder, or NLab. This AI-powered capability enables pharmaceutical marketers and agencies to build highly customized health care provider audiences using simple natural language prompts directly within DSPs and media planning platforms. By combining our proprietary health care intelligence with intuitive AI-driven workflows, we're making it significantly easier for marketers to build targeted audiences while further embedding OptimizeRx our technology into the planning tools of our customers that they're already using today. Finally, we launched CopayCue, our next-generation co-pay activation solution powered by real-time prescribing intent. Medication affordability remains one of the largest barriers to patient adherence and CopayCue delivers savings information directly within the prescribing workflow at the exact moment physicians are making treatment decisions. By combining real-time intent signals with our industry-leading point-of-care and point-of-prescribe capabilities, we're helping life science organizations improve patient access while delivering stronger commercial outcomes for their brands. Individually, each of these launches represents an important advancement for our platform. Collectively, they demonstrate something even more significant, that we have entered a new phase of innovation as a company. We are evolving beyond being solely a point-of-care marketing company into being the operating system for pharmaceutical marketers. Our technology infrastructure is connecting pharmaceutical marketers, media agencies, demand-side platforms, health care providers and patients at scale through authenticated clinical workflows. As AI becomes increasingly integrated into commercial planning and as health care advertising continues migrating toward privacy-safe programmatic execution, we believe our combination of proprietary health care data, authenticated clinical inventory and workflow integration creates a highly differentiated platform with significant long-term growth potential. This strategic evolution not only expands our addressable market but also creates additional recurring revenue opportunities that we believe will become increasingly meaningful over time. Before turning the call over to Ed, I'd like to share an important leadership announcement regarding our finance organization. Over nearly 5 years as Chief Financial Officer, including previously as our Chief Operations Officer, and most recently as our Chief Strategy Officer, Ed Stelmakh and the Board of Directors have mutually agreed on a planned leadership transition effective December 31, 2026, that reflects both the depth of talent within our organization and our commitment to prudent financial stewardship. Over the past 5 years, Ed has played an instrumental role in transforming our financial foundation and positioning OptimizeRx for long-term success. Under his leadership, we've significantly expanded our gross margins and operating margins, strengthened our operating discipline, successfully refinanced our debt to materially improve our cost of capital, completed the acquisition and integration of Medicx, executed the divestiture of noncore assets to sharpen our strategic focus and built a deep, highly capable finance and strategy organization that positions the company well for the future. Just as importantly, Ed has helped establish the financial discipline and operational rigor that support our long-term strategy and our commitment to sustainable shareholder value creation. As part of our long-term succession planning process, we're pleased to announce that Andy D'Silva will succeed at as our Chief Financial Officer, effective January 1, 2027. Andy has most recently served as our Chief Business Officer and has worked closely with Ed and the Board of Directors and our executive leadership team on our financial strategy, capital allocation, investor relations, corporate development and long-range planning. He's been deeply involved in many of the strategic initiatives that have helped transform the business over the past several years, making him well prepared to lead our finance organization as CFO. We're also pleased to announce that [ Heather Pavaso ] will be promoted to Chief Accounting Officer effective January 1, 2027. Heather has been an outstanding leader with our financial organization and played an instrumental role as our Corporate Controller for the last 8 years, strengthening our accounting operations, financial reporting, internal controls and overall finance infrastructure. Her promotion reflects both the strength of our accounting organization and the deep bench of leadership that we've built over the past several years. To ensure a seamless transition, Ed will remain our Chief Financial and Strategy Officer through the end of 2026. Ed has also agreed to remain in the role of strategic adviser in 2027 to ensure ample time for thoughtful and seamless transfer of responsibilities while allowing Andy and Heather to continue working closely with him as they assume their expanded leadership roles. Transitions like these are strongest when they're the result of thoughtful planning rather than necessity. And that's exactly what this represents. We have tremendous confidence in Andy and Heather and we're equally grateful that Ed will continue supporting the company throughout the transition. On behalf of our Board of Directors and everyone at OptimizeRx, I want to thank Ed for his outstanding leadership and the many contributions he's made during his tenure. With that, I'll turn the call over to Ed.

Thanks, Steve, and thank you for the kind words. While this is certainly a bitter-sweet moment, it is also one I approach with clarity confidence and optimism for the company's future. I look forward to continuing to drive our strategic priorities through the back half of 2026 and contributing to the company's mission and advisory role in 2027. I want to extend my appreciation to the Board, our leadership team, all our employees and shareholders of this company for giving me this amazing opportunity for the last 5 years. It has been a true privilege to serve as your Chief Financial and Strategy Officer, and I'm excited to see what the future brings. Now let's turn to our financial results for Q2 2026. As always, we issued our earnings release this afternoon detailing our financial results for the second quarter ended June 30, 2026. A copy of the release is available on the Investor Relations section of our website and additional information will be included in our upcoming Form 10-Q. Second quarter revenue was $20.5 million, a decrease of 30% from the $29.2 million we recognized during the same period in 2025. The revenue reduction was largely contained to a limited number of large customers that utilized the lower-margin managed services in 2025, an offering from which we have been transitioning away since acquiring Medicx in 2023. And one of our large customers in 2025 that has not generated revenue this quarter as well as a decrease in demand due to macroeconomic factors, including MFN pricing dynamics. Our expenses for the quarter ended June 30, 2026, decreased $5.4 million year-over-year to $20.6 million, primarily driven by lower cost of revenue despite being impacted by $1.7 million in severance expense associated with our previously announced reduction in force. The decrease in cost of revenue was primarily attributed to a favorable product mix resulting from not having any DTC managed service revenue this quarter and a favorable channel partner mix. We believe various margin optimization strategies we implemented over the last 18 months continue to yield meaningful benefits. As a result, we now expect gross margins to normalize into the high 60% to low 70% range for full year 2026. Meanwhile, we had a net loss of $0.7 million or $0.04 per basic and diluted share for the 3 months ended June 30, 2026, as compared to a net income of $1.5 million or $0.08 per basic and diluted share for the same 3-month period in 2025. On a non-GAAP basis, our net income for the second quarter of 2026 was $3.1 million or $0.16 per diluted share as compared to a non-GAAP net income of $3.7 million or $0.19 per diluted share in the same year-ago period. Our adjusted EBITDA was $4.1 million for the second quarter of 2026 compared to $5.8 million during the second quarter of 2025. Operating cash flow was $8.1 million for the first half 2026 and we ended the quarter with a $24.1 million cash balance as compared to $23.4 million on December 31, 2025. As we highlighted in May, our term loan with [indiscernible] Capital was refinanced with Fifth Third Bank, which we fully drew down the $25 million term loan and have access to a $10 million revolver. Our current interest rate on the term loan with Fifth Third Bank is SOFR plus 2.25%. With that said, we paid $5.3 million in principal during the quarter, which was $5 million ahead of our payment schedule, leaving our outstanding debt at the end of June at $19.7 million. Furthermore, subsequent to the quarter end, we paid off an additional $3 million in debt. At this time, we intend to deploy at least a portion of our free cash flow to pay down the principal on our loans 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 2026. Average revenue per top 20 pharmaceutical manufacturer now stands at $2.7 million. Net revenue retention rate dipped below prior period levels to 90%. The dip was driven primarily by a small number of large accounts optimizing spend rather than a broad-based churn. Additionally, revenue per FTE came in at $750,000. While our KPIs showed a decline compared to previous quarters, we have made meaningful progress on margin expansion and operating expense management consistent with our strategy of driving profitable growth in our space. Based on our first half performance and the visibility we have into the remainder of the year, we are reaffirming our previously issued full year 2026 guidance. We continue to expect revenue in the range of $95 million to $100 million and adjusted EBITDA between $21 million and $25 million. While portions of this health care marketing environment remain dynamic, our execution year-to-date, continued product innovation, expanding book of business with select clients and disciplined expense management give us confidence in our outlook for the balance of the year. As we noted previously, we continue to expect revenue to be weighted towards the second half of the year. Consistent with the seasonal processing patterns of many of our customers with Q4 coming in significantly higher than Q3 and likely representing 35% to 40% of our full year revenues. With that, I'll turn the call back over to Steve. Steve?

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

[Operator Instructions] First question comes from Ryan Daniels from William Blair.

This is [ Dustin ] on the call for Ryan. Maybe just first, wondering if there is an update on the larger client you've spoken about previously. I know you probably can't get into too many specifics, but wondering at a high level, what's the update there? And what are the expectations that are baked into the back half in relation to that client?

Dustin, thanks for the question. We, right now, don't have any expectation baked into the back half for that large client coming back, but we are starting to see some progress around it that will definitely positively impact the back half. How much, we're not really prepared to say at this point, but discussions are open and we're actively engaging there. We also just announced -- you may have seen the announcement of our Chief Marketing Officer, that Chief Marketing Officer is coming from that client as well. So I think is prepared to kind of help us bridge the gap there and get some things right where we had the missteps that we talked about last quarter on the commercial front.

Okay. Great. Understood. So you've talked about the strategic importance of DSP. Just wondering if you can talk more about the progress with DeepIntent, and if you're making any inroads with other DSPs that are out there, I think you stated that -- also that DSP could double your business over the next 2 years. Just what does the growth curve look like for the DSP opportunity there over the next 24 months?

Got it. So we've got great news. We've gone live with DeepIntent as of this last week, and so that's pretty exciting for us as a business. We're now starting to see bid flow happen over the platform. I don't really think we're ready to say what the uptick looks like in terms of the next couple of weeks and months, but we do think it will be very, very meaningful. And I would also say right now in terms of just the broader programmatic environment, 60% of the buys out in this specific space are occurring now through these programmatic channels. And so our comment around sort of the ability to scale the business through that ecosystem is directly tied to the number of buys that we know are having through these DSPs, and it's not a place -- those aren't funds that we've had access to in the past. So we are expanding our near-term accessible market, and that's kind of a little bit more color around the commentary. So more to come around that. We do have other DSPs that we're speaking with, but nothing that we're ready to announce on this call. But stay tuned.

Okay. Got it. And then just lastly for us, there's been some discussion with the FDA and HHS about eliminating the adequate provision framework for pharma advertising. And you know that require more disclosures with the DTC ads. How are you thinking about that potential impact on the pharma marketing budgets and channel allocation? Could that lead to some shift in TV and potentially create some incremental demand for your digital and point-of-care engagements.

Yes, no problem. Yes, we see those moves as favorable for our business per your last comment there. Anything that would sort of limit the ability to execute across other DTC channels where we may not be engaged at scale will automatically push funds into some of the HCP focused marketing channels where we are connected and that are sort of our bread and butter. So we have been waiting on that with [indiscernible]. We're not forecasting it because it's impossible for us to predict what the FDA and HSS are or are not going to do. But we're well positioned that if they do make that decision, we will benefit. It won't just be us, everybody in our space that's focused on ECP will disproportionately benefit also. Great question.

The next question comes from Richard Baldry from ROTH Capital Partners.

If we look at your adjusted EBITDA guidance, the implication is the second half would be somewhere between $13 million to $17 million. Can you talk about under that backdrop, what your capital allocation strategy might start to evolve to? Do you still see pretty much an exclusive focus on reducing debt? Or do you think more of a balance between that and share buybacks at current depressed levels?

Yes. Ed, I'll let you take that one.

Yes. No problem. Richard, yes. I think our strategy, as we said in the prepared remarks, will be first pay down the debt. We're down to $16.7 million of outstanding principal. And then secondly, if the price of the stock continues to drop, we have a [ 10b5-1 ] [indiscernible] to trigger buying with a $10 million approved stock buyback. .

And in terms of the second half rebound to revenues that's implied in guidance, how much of that is visible contracted or how much of that is really just assuming seasonal patterns you've seen in the past sort of repeat themselves?

Yes. I mean I think, Rich, first of all, it's good to hear your voice. We right now are seeing, as we shared sort of in the previous calls, still trending more towards '24 contracted revenue seasonality versus '25 just in our progress. And that's why we're reiterating the guide that we've got out there right now versus increasing the guide. We do think the seasonality that we've experienced in previous years is pretty much what we should anticipate for the back half of this year. We're starting to already see that. But sort of the visibility that we've given is what we've put out there. That's what we've got visibility to. And anything that's incremental above and beyond that, obviously, on the next earnings call, if we have more visibility with contracted revenue, we'll be happy to provide an update around that. But no changes right now to that. We've got to sort of iron out the the 1 major client disruption that we've got and sort of take a look at what Q3, Q4 is going to put out before we do any updates. Good -- I would say, good solid progress as we approach the back half now. .

And maybe looking at, call it, top of the funnel, can you talk a little bit about non-top 20 opportunities, whether that's new logos or existing, how are they acting sort of by contrast to the top 20 who've seen obvious issues with MFN, et cetera?