OPTIMIZERx Corp

NASDAQ:OPRX

Q3-2025 Earnings Call

[Unknown Executive]

[Audio Gap] The Street and also to our clients and investors that we're going to give more visibility on our visibility into the future as we've been migrating more toward a predictive model we've quoted in the past, subscripted momentum. And so we're going to continue to push that throughout the remainder of the year. And as a result of that, we're now getting more visibility into the out years, including 2026.

In terms of the RFP situation, Ryan, RFP season has been very strong for the business. We do see more people coming into the digital space and making investments on the client side. And we're seeing equal parts, HCP and DTC at this point, interest in the RFP cycle I would say the parts of [ DTC that we cover at OptimizeRx are CTV, ATV, the pieces that you're aware of. And in the event that we have a linear television ban or reduction or any of those pieces our view and thesis is that our solutions that will continue to benefit disproportionately from those types of moves. So I would say, at this point, both DTC and HCP are looking very healthy. I appreciate the question.

[Operator]

And the next question comes from Richard Baldry with ROTH Capital.

[Richard Baldry, analyst]

When you look at the implied guidance for fourth quarter revenue, it'd be actually slightly down year-over-year at the top end of guidance. you talk about either any onetime year-ago issues or listen because your net retention would argue that, that's sort of difficult to do.

[Stephen Silvestro, executive]

Yes. Thanks for the question, Rich. Good to hear from you. So I mean, what we're looking at is really a full year guide at this point and trying to give a good range of what we believe will come in at. We moved away from quoting pipeline as everybody on the call knows and have moved principally towards contracted revenue what our real visibility is. And so the new guidance that we've updated with is truly what our visibility is. It doesn't count bluebirds that might happen, buy-ups that might happen that are not accounted for right now where we don't have visibility in years past, we would have thought about that more in terms of on pipeline and probabilities.

But what you're seeing in the guidance now is, I think, reflective of our true visibility that we know we can deliver on. Again, we're going to continue to be very transparent, very conservative, not sandbagging, but look to beat the numbers that we put out there every time. So hopefully, you appreciate the transparency and conservatism.

[Edward Stelmakh, executive]

Just that -- Yes, sorry. Just to add a little bit. As Steve said, I think we do need to look at it on a full year basis rather than quarter-by-quarter. As you know, Q1, 2 and 3 have been extremely strong. So it is more of a smoother sort of leasing this year than it was in the past. So again, I would just encourage you to look at the full year performance versus last year.

[Stephen Silvestro, executive]

And part of it is the enhancement to the revenue model, right, Rich, part of it is we've been successful at migrating away from periodic revenue drops and getting to a more smooth revenue model. And so that's what Ed is referring to there.

[Richard Baldry, analyst]

Got it. It's just implicitly a little hard to look at it as a full year, you only have 90 days left. So same question I think I'm going to get a similar answer. But if you look at the adjusted EBITDA guidance, you'd have an up revenue quarter, maybe 10% plus sequentially, but the adjusted EBITDA either be slightly down to narrowly possibly up Again, is there any like onetime expenses year-end things that true up higher that create more of a headwind because it wouldn't -- it'd still be down year-over-year as well.

[Stephen Silvestro, executive]

Sure. Ed, do you want to take that one?

[Edward Stelmakh, executive]

Yes, I can take that one. Yes, look, I mean, we're assuming a conservative gross margin number. There's nothing really in the operating expense line that's going to pop. So it's more of just being a little bit more conservative on what you think is going to happen with the channel and product mix we do believe that we were shooting for hitting or beating the top end of the range.

[Operator]

And the next question comes from David Grossman with Stifel Financial.

[David Grossman, analyst]

Maybe we could just expand a little bit on the line of questioning you just went through. And maybe, Steve take a minute just to remind us fundamentally, what may be going on in the business that maybe smoothing out the quarters or maybe giving you better visibility? And then I have another question after that, but just curious, again, fundamentally, some of the changes that you guys have made that may be creating a little better visibility and again, giving you the confidence, for example, to guide to 2026 at this point.

[Stephen Silvestro, executive]

Sure. Yes, happy to talk to it and then Andy and Ed can chime in also. But I mean, if you think about our business data the way that we've talked about it over time, you've got our audience businesses, which is GAAP principally, and then you've got micro neighborhood Audience, which is that targeting capability for DTC. Both of those are data-driven technologies that are -- lend themselves to becoming more subscriptive in nature. Then you've got our execution functions, both at point of care and the other omnichannel components for HCP and you've got that for DTC. And those are obviously going to be transactional largely because that's the way that component of not just our business, but the ecosystem operates.

And so what we've seen is outsized growth in DAAP let we've talked about in months past, and we've seen a resurgence of micro neighborhood audience growth. And so those pieces not only give us a smoothing of the revenue because of the revenue models, but they also give us a renewable view into what 2026 will look like and those contracts start earlier than we would normally do for transaction level transaction level contracting. So that's the big part of it. Andy, Ed, feel free to chime in if you want to add more.

[Edward Stelmakh, executive]

No, I was going to say, I mean, as you guys know, I mean, vast majority of our business comes from renewals. So if you take that into account and then add some of the successes that drove this year, on top of it with more visibility into next year in terms of sand contracts as we sit here today, we feel like we're in a position to say, right, looking at next year, can start to make at least a general guide around book ends that we're going to shoot for. And as things progress forward, we'll continue to tighten that range. Yes, go ahead, Andy, you can add to that.

[Andrew D'Silva, executive]

No, you got it. You both you nailed it.

[David Grossman, analyst]

About? All right. So thanks for all those details. So if I recall, like last quarter, we talked about these managed services type of contracts that come in. How much of that was present in the third quarter? And are you kind of making the same assumption that you did last quarter where you're not assuming any of that comes to bear in the fourth quarter in terms of the guidance that you provided as well as the outlook for '26. Is that the way to think about it?

[Stephen Silvestro, executive]

Yes. And you take that one?

[Andrew D'Silva, executive]

Yes. So it went back to more of a normalized rate in the third quarter as it relates to that managed services business. The only thing that we're including in the forecast period for Managed Services business is stuff that we've already won and is starting to burn into revenue right now. We're not really including anything that's in pipeline and we don't have visibility to. So again, we're taking a very conservative approach to providing guidance with bookings that we feel very comfortable with.

[David Grossman, analyst]

Right. So as we kind of think of your guidance for '26, can you help us kind of bracket the kind of retention that is the baseline, if you will, to achieve that range?

[Andrew D'Silva, executive]

Yes. So historically, between 5% and 15% of our business comes from new logos every year. So the remaining would be what you would consider net revenue retention on a normalized basis?

[David Grossman, analyst]

Okay. And that's the same assumption underlying your '26 guidance?

[Unknown Executive]

It is.

[Andrew D'Silva, executive]

Yes. We don't really guide based on net revenue retention, right, but that's kind of how it just shakes out as every year progresses.

[David Grossman, analyst]

Got it. Great. And then on the...

[Unknown Executive]

And David, on that note, just one other quick bullet for you. Just -- and you and I spoke about this last time we were together, we are seeing good growth in the mid-tier segment of our business, meaning the mid-tier segment of clients coming to the table who may not be in that top 20, 25, 30 manufacturers that are coming in with outsized spend, mostly because we're able to provide capabilities that can supplement not just supplement, frankly, replace a lot of the stuff that they can't afford to do internally. Whereas the big manufacturers might have kind of Cadillac support, so to speak, the mid-tier businesses do not. But using the technology that we've got allows them to compete on level ground. And so that's why we're seeing such a drive there. In our commercial organization, that Theresa is leading has done a wonderful job of driving that. So I just wanted to call that out as a key point.

[Operator]

And the next question comes from Eric Martinuzzi with Lake Street.

[Eric Martinuzzi, analyst]

I wanted to dive in on the RFP trends. You talked about their I was just curious, though, is that your win rate is the same and the number of RFPs has improved? Or is your win rate improving on a flat RFP trend? What can you tell us there?

[Stephen Silvestro, executive]

Yes, I'll start, and then I'll have Andy chime in, too. But all of the above, we're seeing the RFPs are more directly pointed at what we want them to be, which I think is good. The market is seeing what we are shifting the business model to over time. So the RFPs are definitely reflective of what we're providing the market, providing our clients. And I would say our win rate as a result of that is getting better.

Again, I want to give some credit to our commercial team. They're doing an excellent job of getting out ahead of all of this stuff and engaging with clients. And when you're engaging with clients more intimately, you can tend to drive the crafting of the so that they get written at an appropriate level to something that you can respond versus a just a random spray and pray request for information, right? And when we get those, the hit rate will be lower because there was no prior engagement. So hats off to Jen Dwyer, Theresa Greco and the entire commercial team for doing a great job there.

[Eric Martinuzzi, analyst]

Right. And then you talked about the smoothing of the business. maybe I could use a brief tutorial on the transactional where you said that those started later in the year as opposed to the DAAP and the micro neighborhood that are more sort of level loaded that kicks off to each of those types of campaigns.

[Unknown Executive]

Sure. Yes, happy to talk about it. I mean you think about what DAAP and what M&T or M&A does it's principally audience creation and it's the data that drives all of the campaigns, right? It's the technology that's producing, finding those patients wherever they're going to be. And so because that is more of a software-like play that lends itself to a normal planning cycle where renewals are going to happen earlier. That's the way pharma manages that segment of their budget and then the transactional components, which is typically message distribution, whether it's at an HCP level or if it's something that's going through like a trade desk or some other way, typically is budget and accounted for on a quarterly basis, and it's based on performance and driven that way.

So bringing gap to the table and getting it more mature, which we've been working very hard on, as you know, over the last several years since we launched it, and now bringing in what we acquired through the Medicx acquisition with M&T, that has really started to transform the profile of the business. and that's what you're seeing reflected in the performance of this year as well. You're seeing it front and center, but it will reflect into 2026 as well. That's given us great visibility. I think everyone feels better about what we're doing there or significantly up year-over-year on visibility for next year.

[Eric Martinuzzi, analyst]

Is there -- what's the right way to think about the percentage of the revenue in 2025 versus the percentage of the revenue in 2026? Between those two buckets.

[Unknown Executive]

We don't break it out. We don't break it out at a product level.

[Operator]

Your next question comes from Anderson Schock, B. Riley Securities.

[Anderson Schock, analyst]

Congratulations on another really strong quarter. So first, could you provide some color on the partnership with Lamar Advertising and on the size of the opportunity here? And I guess, will this gradually roll out in specific regions? Or is this going live across their entire national inventory?

[Stephen Silvestro, executive]

Yes. Happy to talk about it. Great to hear from you. So the whole idea with Lamar is they're looking to transform their business model, right? And their current business model is billboards.

One of the things that OptimizeRx does really well, which you're acutely aware of is patient finding and an ability to be more precise in the way that we deploy messages across our omnichannel ecosystem.

So think about the capability of doing that to enable a screen that's in a desperate location that might move from a random billboard to maybe a digital screen that's large, right? And that's really what Lamar is after there.

The size of the opportunity is very large. I'm not going to take a stab at the because it's not might take a stab at, it's really theirs. But the partnership is going to start rolling out pretty rapidly, I would say. And it's still early for us to start quoting projections on what we think it will do. It's really piloting at this point, but we're feeling pretty optimistic about the initial testing that we've done. And we'll release more information on it as we get some more results. But early stages look pretty encouraging.

[Anderson Schock, analyst]

Got it. And then I guess this current guidance that you've provided for 2026 factoring any contributions from this partnership?

[Stephen Silvestro, executive]

No, zero, nothing. Too early for us to start factoring into forecast, we not going to do it yet.

[Anderson Schock, analyst]

And then could you talk about the gross margin expansion in the third quarter? What really drove this? And how should we be thinking about margins going forward in the fourth quarter and also into 2026?

[Stephen Silvestro, executive]

Sure. Ed, do you want to take that one?

[Edward Stelmakh, executive]

Yes, sure. Yes. So okay, it's typically driven by our product mix or solution mix and the channel partner mix. As we said before, as we scale the business, we have much more ability to negotiate more favorable deals with our channel partners, so that's reflecting yourself in the numbers. as well as growth in DAAP and the DTC platform. So those two things together contributed to where we are right now for the year in Q4. Going forward, I would say we're kind of stabilizing in that upper 50s to low 60s range from a guidance perspective. But you can see there's certainly upside to that number as the year progresses.

[Stephen Silvestro, executive]

I'll add just one quick thing to that there, Anderson. So we also, in the third quarter had a lot more -- or the second quarter had a lot more managed services revenue. and we did not have nearly as much in the third quarter and managed services revenue is our lowest margin product.

[Operator]

[Operator Instructions] And the next question comes from Jeff Garro with Stephens.

[Jeffrey Garro, analyst]

I want to ask on the 2026 guide and the profitability side. if I calculate it right, at the midpoint, I see about 60 basis points of EBITDA margin expansion. I was hoping you could talk about the mix of gross margin expansion may be dependent on channel mix versus operating operating leverage? And then any areas of potential variability that could lead to more or less margin expansion than what we see at the midpoint there?

[Operator]

Jeff, I'm happy to answer it topically, and we won't get too deep into 2026, but happy to answer it topically. And what Andy just said is really a clear articulation of the dynamics of the business that really govern it, right? So as we continue to see our audiences grow over time through the DAAP and M&T products, margin expansion will continue to be front and center we will also manage the channel partner mix on the other side. Is that looking for optimal margin and that gives us the dynamic of being able to continue to improve over time. execution will be what it's going to be, as you know, from this business, and that's fairly predictable on the highs and lows. But those are the dynamics that are sort of shaping how we're thinking about 2026 gross margin expansion opportunities and where we've landed. Hopefully, that's helpful.

[Anderson Schock, analyst]

Maybe a follow-up on the operating leverage side of things. You have certainly seen I think, a quarter-over-quarter decline in adjusted operating expenses this quarter seen really good leverage. And maybe not expecting that to be the persistent trend over the next 5 or so quarters, but just a little more color commentary on your ability to drive additional operating leverage in the business would be helpful.

[Stephen Silvestro, executive]

Yes, no problem. We're going to consistently -- go ahead, Ed. Yes, why don't you take it?

[Edward Stelmakh, executive]

Yes. So OpEx, as we said before, I mean, we currently leverageable business model as it is now. So as I said, on a cash basis, that was actually a bit of an increase, about $2 million versus last year. And that most of that is driven by the fact that our bonuses and variable comp are tracking our overperformance on the top line this year. So once you dial that back, you can pretty much assume a relatively stable operating expense run rate on a cash basis.

[Operator]

And this concludes our question-and-answer session. I will turn the conference back over to Stephen Silvestro for any closing comments.

[Stephen Silvestro, executive]

Thank you, operator, and thank you all for joining us today. We're pleased to be building on a strong operational and financial momentum. Our foundation is solid, our patient-focused strategy is working, and we're confident in the path ahead. What you heard today reinforces our belief in our ability to achieve both our near-term goals and our long-term growth objectives.

I remain deeply optimistic about the future of our business and the opportunities before us. We look forward to speaking with all of you again on the next earnings call and meeting many of you in the upcoming investor conferences and one-on-one meetings in the coming weeks. Wishing everyone a wonderful rest of your day and a wonderful holiday season with your families and friends.

[Operator]

Thank you, Mr. Silvestro. 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 include forward-looking statements within the definition of Section 27A and the Securities Act of 1993 as amended and Section 21E of the Securities Act of 1934 as amended.

These forward-looking statements would not be used -- should not be used to make investment decisions. The words 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. Forward-looking statements in this call include statements made defining how pharmaceutical companies, patients and prescribers connect, our value or growth plans, creating shareholder value, becoming a Rule of 40 company, estimated 2025 revenue and adjusted EBITDA ranges, capturing greater market share, expanding our participation in the pharma industry's digital ecosystem, our technology and growth opportunities and building a strong operational and financial momentum.

Forward-looking statements also include the management's expectations for the rest of the year. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements are inherently subject to risks and uncertainties, which cannot be predicted or qualified Future events and actual results could differ materially from those set forth and completed 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, compensation, dependence on a concentrated group of customers, cybersecurity incidents that could disrupt operations, the ability to keep pace with growing and evolving technology the ability to maintain contact with electronic prescription platforms and electronic health records networks and the material risks discussed in the company's annual report Form 10-K for the year ended December 31, 2024, and other companies the company has made and may make with the SEC in the future. These filings when made are 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 an audio recording of this conference call will be available for replay starting later this evening running through for a year on the Investor section of the company's website. Thank you for joining us today. This concludes today's conference, and you may now disconnect your lines.